Special Needs Trust (Continued from page 16)
General Duties Of Fiduciaries Under A Special Needs Trust: Although not required, it is common practice to bifurcate the traditional du- ties of the trustee between a Trust Advisory Committee and a bonded or insured fi- duciary designated to manage and invest trust assets (hereinafter referred to as the “Trustee”). The Trust Advisory Commit- tee usually consists of three or more persons responsible for all decisions re- garding the spending of trust funds on behalf of the beneficiary. The Trust Ad- visory Committee should be made up of persons directly involved with the ben- eficiary so that they are in a position to recognize the beneficiary’s special needs and to purchase items and services which best fulfill them. The Trustee is usually responsible for the financial management of trust assets, maintenance of financial records, the preparation and filing of tax returns, as well as other general account- ing duties, and for ensuring that disbursements from the trust will not af- fect the beneficiary’s eligibility for means-tested benefits. Under the above-referenced two-entity arrangement, the Special Needs Trust is generally managed by the Trustee, who prudently invests the funds received and permits disbursements in accordance with 42 U.S.C. §1396p(d)(4)(A), Maryland law and the trust document. Maryland’s law is clear that the disabled client’s fam- ily or guardians are not relieved of their responsibilities to provide for food, shel- ter and clothing for the disabled client, no matter what the age of the client.7 Upon request, the Trustee can disburse funds for the special needs of the client. 8 Common sense is the rule. In general, use of a Special Needs Trust as a financial, investment and manage- ment vehicle is often far more economical and financially advantageous than guard- ianship or conservatorship.
7 8
See Md. Fam. Law Code Ann. § 13-102 (Supp. 1998).
To determine whether a need is a “special need”, a simple ‘but for’ analysis can be used. For example, a disbursement for diapers for a disabled adult or a child who is not an in- fant is permissible because typically only in- fants and toddlers require diapers. Likewise, a disbursement for clothes, which are uniquely designed to accommodate neces- sary medical equipment like a colostomy bag, is also a permissible disbursement.
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reports to the court are minimized, in- vestment opportunities are expanded, and court and attorneys’ fees are reduced. Some other consistently recognized ben- efits of the two-entity arrangement referenced above include: • An internal check and balance system between the Trust Advisory Commit- tee and the Trustee.
• Although some ongoing Trustee’s fees and initial start-up costs will result, ex- tensive resort to a court for investment and disbursement authority will nor- mally not result.
• Advantageous interest rates and stock prices can be realized immediately be- cause court approval is not required and because the Trustee will generally have authority to make all investment decisions, subject to State trust law, without the expense of seeking court approval.
• The costs of annual court reports also may be minimized because the finan- cial reports required of a Trustee under most state trust accounting acts will be generated through normal book- keeping techniques.
• The Trust Advisory Committee will generally be able to make all decisions on trust spending, again without the expense of seeking advance court ap- proval of individual expenditures.
• A reduction in fees charged by the pro- fessional Trustee can normally be negotiated in consideration of the sig- nificant reduction in the professional Trustee’s responsibility for disburse- ment decisions.
If establishment of a Special Needs Ongoing
Trust without a separate Trustee is cho- sen by the client, a person with investment expertise should be included as a mem- ber of the Trust Advisory Committee. Courts appear to be more willing to ap- prove a trust when such an individual is a member of the Committee. Bonding should also be considered to protect the Trustee from possible future errors and omissions problems. In either case, it is important for an attorney to advise the client that in the long term these benefits far outweigh the disastrous consequences that can result if the client’s award and eligibility are not preserved in a Special Needs Trust or other approved method.
General Steps in Establishing a Special Needs Trust:
The following is a general outline of steps to be taken by the attorney to begin to properly prepare for the establishment
Trial Reporter
of a Special Needs Trust for the disabled client: • An attorney specializing in the estab- lishment of Special Needs Trusts should be contacted in the early stages of the litigation process to ensure all requirements as to a settlement or judgment are met and to formally pre- pare the trust.
• If the two-entity arrangement refer- enced above is desired, a Trustee should be selected by the client’s guardian (preferably a professional Trustee who is bonded and familiar with the re- quirements of a Special Needs Trust) to serve along with the Trust Advisory Committee. If the two-entity arrange- ment is not requested, a Trustee who is not a beneficiary of the trust and who is preferably a professional Trustee, bonded and familiar with the require- ments of a Special Needs Trust, should be selected by the client’s guardian to be a member of the Trust Advisory Committee, which will serve in its ca- pacity as Trustee.
• The Medical Assistance lien for services provided to the client prior to the settlement or judgment must be ne- gotiated, if possible, and satisfied.
• Prior to court approval of the trust, of copy of the trust should be sent to the Attorney General’s Office for its review and approval.
• The trust must be presented to oppos- ing counsel and the circuit court for approval. Upon presentation to the court for approval, it is generally not required that all parties sign the trust or be present. However, it is advisable that the attorney obtain the verbal agreement of any party who has not executed the trust to abide by the terms of the trust and to notify the court ac- cordingly. In addition, the court may require bonding for Trust Advisory Committee members if a professional fiduciary is not included among the members. An attorney should be pre- pared for this by making the appropriate provisions in the plead- ings.
• A federal employer’s tax identification number (EIN) must be obtained from the Internal Revenue Service for the trust. The starting date of the trust is the date of court approval, not the funding date, and a copy of the court’s order approving the trust should be attached to the application for the EIN sent to the Internal Revenue Service.
Because these and many other require- ments for the proper establishment of a
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