the alliance newsletter

[Guest guest]

January 2008 - Vol. 2, Issue 1

The Voice, The Official Newsletter of SNA

· how we help families

· how we help professionals

· related topics

· more about us

Welcome!

You are reading The Voice, a newsletter published by The Special Needs

Alliance. Our purpose is to provide information--and answers--about special

needs planning for family members and professionals. We hope this newsletter

helps you. We invite your questions, suggestions and comments (please

understand that we can not give individualized legal advice on the basis of

an e-mail inquiry). We also encourage you to forward our newsletter to

others who might benefit from the information here, or who might have

similar questions.

Questions About Setting Up a Special Needs Trust

As noted in prior editions of The Voice, we encourage our readers to submit

questions so that we may provide you with guidance on issues both of concern

and interest. Below are one reader's questions and our responses:

" How would you get started to make a special needs trust? "

The first thing you should do is to meet with an attorney who is well-versed

regarding the mechanics of drafting and administering special needs trusts.

Additionally, you should select an attorney who devotes a significant

portion of his or her practice to staying abreast of the various state and

federal laws that are relevant to special needs trusts. Determining whether

a special needs trust even is advisable and precisely how the instrument

should be drafted to meet the particular needs of a client's and the family

member for whom planning is being considered requires a thorough knowledge

of public benefits (such as Medicaid, Medicare, Supplemental Security

Income, and Social Security Retirement and Disability Income), as well as

applicable federal and state laws relating to taxes and governing trusts and

estates.

The attorney generally will ask you to provide certain factual information

at or before the initial consultation. For instance, the attorney may

request basic financial data relating to you and the family member for whom

you are conducting disability or long-term care planning, details about the

family member's disability, verification regarding any public benefits the

family member currently may be receiving, and any prior estate planning you

personally have in place. Because this information is essential for

proposing an appropriate plan for the disabled family member, many attorneys

send out a client questionnaire prior to the initial consultation, while

others simply may ask for this information over the telephone.

When you meet with the attorney, you should bring copies of all relevant

documents and be prepared to discuss the information requested. Generally,

the attorney will know by the end of an initial consultation whether a

special needs trust is appropriate in your situation and may even have

specific outlined a specific design for the document with you. Some times,

however, additional information is needed before the specific recommendation

for planning for the disabled family member can be finalized. As a result,

a second meeting may be necessary before a final determination is made to

prepare a special needs trust or an alternative estate planning tool.

" If your parents name you as the beneficiary of their insurance [and you are

an individual with disabilities who receives public benefits] can that be

put into a special needs trust? "

If a parent has a child with disabilities who likely will need public

benefits during the course of his or her lifetime, the best approach is not

to list the child directly as the beneficiary of life insurance policies (or

IRAs, 401ks, etc.). Rather, the parent should consider naming the trustee

of a previously-created special needs trust. This type of special needs

trust, established by and with the funds of a parent (or any other relative)

for a disabled individual's benefit, is known as a " third-party " special

needs trust. Because the assets never belonged to the disabled child, the

parent who establishes the third-party trust has the right to dictate how

any remaining funds will be distributed upon the child's death.

If a parent fails to do this type of planning and, instead, names the child

individually as the beneficiary of life insurance or retirement benefits,

the child with disabilities will receive the funds directly. In most cases,

receiving the cash benefits in hand will render the child ineligible for

those public benefits programs that have income and resource limits. All is

not lost, however, since the child still may put the funds into a special

needs trust in order to reestablish financial eligibility, but that type of

a trust -- known as a " self-settled " trust -- does not permit the parent to

control what happens with any remaining funds at the child's death. There

are two common types of self-settled trusts (the details of which are

covered in other articles), both of which require the remaining trust funds

first be used to reimburse the state for any Medicaid benefits paid on the

child's behalf over the child's lifetime.

" Is it expensive to set up a special needs trust? "

The cost of a special needs trust will vary depending on several factors,

including where you live, the drafting attorney's level of experience, the

type of special needs trust being established, the complexity of the trust

design, and the overall estate plan of the individual creating the trust.

Due to these variables, an attorney may be unable to provide an estimate

until after the initial consultation.

About the Author: Ann N. Butenhof practices law in Manchester, New

Hampshire, where her focus is on special needs planning, public benefits

issues, elder law and estate planning. Her background includes two separate

stints as a lawyer with New Hampshire Legal Assistance, and before moving to

New Hampshire in 1993 she practiced (and clerked for a federal judge) in

Ohio. Her legal career has included a number of important New Hampshire

appellate cases, including the recent decision in Appeal of Lowy, in which

the New Hampshire Supreme Court upheld her arguments about the language of

special needs trusts.

About this Newsletter: We hope you find this newsletter useful and

informative, but it is not the same as legal counsel. A free newsletter is

ultimately worth everything it costs you; you rely on it at your own risk.

Good legal advice includes a review of all of the facts of your situation,

including many that may at first blush seem to you not to matter. The plan

it generates is sensitive to your goals and wishes while taking into account

a whole panoply of laws, rules and practices, many not published. That is

what The Special Needs Alliance is all about. Contact information for a

member in your state may be obtained by calling toll-free (877) 572-8472, or

by visiting www.specialneedsalliance.com.

2007 Special Needs Alliance. .