A trust is a type of legal entity that is created to enable the transfer of assets from one party to another party in a manner that is controlled by law and the document that creates the trust. Before assets, often money, are transferred to the receiving party, it is said to be held “in trust” for the benefit of a person or people identified in the trust document.
Often, money is released only under certain conditions, such as when the person reaches a certain age or graduates from college, or to pay only certain designated expenses and not others. There are both federal and state laws that address the topic of trusts.
The person creating the trust is called the “trustor.” The person or party receiving the assets from the trust, the person for whose benefit it is created, is called the “beneficiary.” The person who holds and manages the property on behalf of the trustor and beneficiary is called the “trustee.” Knowing the special terminology of trusts helps in understanding how trusts operate and the roles of the people involved.
There can be many different types of trusts, depending on the goals of the trustor, federal law and the law of trusts and estates in the state where the trust is established. Depending on the aims of the trustor, they may use different types of trusts for transferring assets.
If the trustor has a relative or close friend who has special needs or is disabled, then they may want to set up certain types of trusts that are uniquely adapted to serve in this circumstance. These can provide legal mechanisms for transferring or managing assets in ways that do not interfere with the beneficiary’s entitlement to receive critical needs-based government benefits, such as Medicaid and Supplemental Security Income (SSI).
A special needs trust is useful for those who want to provide for a person who has special needs or is physically or mentally disabled. They avoid the risk that the person will lose their eligibility for government programs that require their income or assets to remain below a certain limit if assets were to be transferred to them directly.
The trust assets can be used to cover the percentage of a beneficiary’s financial needs that are not covered by public assistance payments. The assets held in the trust do not count for the purposes of qualifying for public assistance, as long as they are not used to cover certain food or shelter costs. Special needs trust assets are commonly used to cover medical expenses, payments for caretakers, transportation costs, and other expenses as permitted by law. The uses are governed by regulations issued by the Social Security Administration (SSA).
Special needs trusts are irrevocable. This means that they cannot be revoked for any reason. This protects the assets from creditors of the trustor and the beneficiary. Even a person who prevails in a lawsuit against the trustor or the beneficiary cannot access the funds designated for the beneficiary in a special needs trust.
What is a Court-Ordered Special Needs Trust?
A standard special needs trust is a specific type of trust that is set up for a person who has special needs or is disabled. These trusts are usually set up by their parents, often to provide for a special needs child after their parents have passed away. Another goal is to transfer funds or property to the person without disqualifying them from receiving various types of government benefits such as Medicaid.
Special needs trusts can be used for other situations and to serve other goals. Usually they help provide supplemental care beyond what government agencies and programs may provide.
A court-ordered special needs trust is one that, as its name suggests, is ordered by a court exclusively in situations in which a person who has special needs or is disabled has inherited assets or been awarded damages or a settlement as a result of a court proceeding, e.g. the trial of a personal injury lawsuit. Again, one of the main goals is the same as for a regular special needs trust, that is, to permit the beneficiary to continue to receive public benefits.
These types of assets cannot be put into standard special needs trusts. Instead, a court-ordered special needs trust, also called a “Type A” special needs trust, must be established. Laws regarding the requirements and procedures for setting up and maintaining a court-ordered special needs trust vary from state to state. There is also federal law on the topic.
Generally, however, after the court establishes the trust by its order, the person subject to the order must obtain a Tax Identification Number (or EIN) for the trust. The person then needs to set up bank accounts for the trust assets, file an inventory and appraisal of the assets with the court and submit regular accountings to the court. The trust remains in existence until the assets are used up or the beneficiary passes away. Once the beneficiary has passed away, any funds that remain in the trust are paid to the state for any medical assistance provided after the trust’s establishment.
How Can I Set Up a Court-Ordered Special Needs Trust?
A court-ordered special needs trust is initiated when a court issues an order with instructions to establish such a trust. A court-ordered special needs trust would need to be formally created by an experienced trust lawyer on behalf of the disabled person. The lawyer drafts the documentation that establishes the trust. Unlike other types of trusts, only certain qualified parties are authorized to obtain this service, including:
- Parents of the disabled person; in some instances, a grandparent can also set one up;
- Legal guardians of the person; and
- The court itself.
Also, the disabled person must meet various requirements. These may include certain Social Security standards; they must also be under 65 years of age, and must have a legally recognized disability that qualifies them to be the beneficiary of a Type A trust according to the requirements of the law.
Generally, a person who is entrusted by the court with the duty to set up this type of trust would use the services of an experienced trust lawyer who knows how to set up and service court-ordered special needs trusts.
What Other Aspects of a Court-Ordered Special Needs Trust Should I Consider?
It is important to note that upon the death of a person who has special needs or is disabled, any funds that remain in a court-ordered trust are paid over to the government of the person’s state of residence. The exact amount of funds that are paid to the state is based on the amount of medical assistance they received from the government during their lifetime.
Court-ordered special needs trusts are generally subject to more restrictions and requirements for legal monitoring than are an ordinary special needs trust. This is due to the fact that the trust is set up at the direction of the court and the funds under management have been put in the trust because of a court proceeding, often either the probate of a will or a trial in which the beneficiary was awarded damages or a settlement.
More personal transfers of funds may require a different type of special needs trust to be created. Alternatively, different financial tools may also be employed, such as a specific type of will or other estate planning devices.
Do I Need a Lawyer for Help with a Court-Ordered Special Needs Trust?
If you are still unsure as to whether a special needs trust is appropriate for your situation or your loved one’s needs, then you should consult with an experienced trust attorney and explore different types of trusts as well as other financial tools.
Court-ordered special needs trusts are highly specific legal devices, and you need to hire a trust attorney if you need assistance setting up or managing a court-ordered special needs trust.
Your attorney can help you interact with the court to ensure that the trust is set up properly, and that the recipient of the funds is legally qualified to receive distributions. Also, if you need to appear in court or file a legal claim over a trust dispute, your attorney near you can help with those matters as well.
