The History of Missouri Special Needs Trusts

Misty A. Watson

Misty A. Watson




Genesis of Current Law: Case Study

A Special Needs Trust (also known as Supplemental Support Trust) is a legal mechanism that allows families to provide funds to relatives with special needs without interfering with their government benefits. The Missouri Division of Family Services (DFS) and the Social Security Administration analyze the special needs person’s assets annually to determine if he or she qualifies for government benefits, such as Medicaid and Supplemental Security Income.

If that person has more than $1,000-2,000 (depending on the program) in assets, he or she will be disqualified and will not receive the benefits. Most families need to maintain government benefits for family members with special needs, but also want to provide additional support.

For many years, families’ options were limited and the options available were not always beneficial to the needs of their loved ones. Some families elected to leave an inheritance to the special needs person in a lump sum amount that would automatically disqualify the recipient from government programs. Some families elected to disinherit the special needs person and hope that other family members would provide for any of his or her supplemental needs. These options did not fulfill the wishes of the families or supply adequate supplemental support for their loved ones.

In 1985, the Division of Family Services found that Bruce Tidrow, a mentally disabled individual, was not able to benefit from government programs because his parents had left him assets in a discretionary trust that exceeded the maximum allowed by the government programs. Mike McKitrick and Barbara Blee Maille, principals at Danna McKitrick P.C. in St. Louis, were two of the attorneys who appealed this decision to the Appellate Court of the Eastern District of Missouri.

Mike and Barbara argued that Bruce’s interest in the trust was not an “available resource.” Therefore, it was not his money because it was in a discretionary trust which allowed, but did not require the trustee to distribute funds to provide for Bruce’s “reasonable comfort” during the remainder of his life. The Court of Appeals agreed and found that the trust was intended to supplement and not replace Bruce’s government benefits; and because the trustee had complete control over the interest and the principal of the trust, the funds were not “available” to Bruce as to disqualify him for benefits.

In Tidow, the court solidified the legality of the Third-Party Grantor Special Needs Trusts in the state of Missouri. This type of trust can come into being before or after the death of the Grantor, but it cannot contain any assets of the beneficiary with special needs.

Missouri enacted a new Uniform Trust Code in 2005[3] that has a variety of implications on the Special Needs Trust. The new code states that Special Needs Trusts cannot be terminated by agreement by either the Grantor who set it up or by the special needs family member who will benefit from the trust. Special Needs Trusts are irrevocable, which means that once the trust is established (or upon the death of the Grantor), the only way that the money can be spent is determined by the trustee.

After the beneficiary’s death, the funds are then allocated as specified in the estate plan. As with any estate planning mechanism, the best option depends on each family’s unique situation.

Rules of the Legal Road

There are a number of provisions that must be drafted into the trust document in order for it to be considered a true special needs trust that will protect your loved one from losing government benefits. A trustee must be appointed to manage the trust and, upon the trustee’s approval, funds may be distributed to vendors or other third parties for the benefit of the person with special needs. The person with special needs cannot receive any of the funds directly. If this happens, the government benefit programs will consider that money as an asset and may disqualify him or her from receiving benefits.

Additionally, the trust must be drafted as either presently irrevocable or irrevocable upon the death of the Grantor, which prohibits the family member with special needs from selling or cashing in his or her interest in the trust, which will disqualify the beneficiary from government benefits. This list of required provisions is not conclusive and other specific language may be important to secure your financial commitment to your loved one.

Conclusion

In order to protect your family and their financial security in the future, it is important to talk to an attorney with expertise in estate planning for families with special needs members. Setting up a Third-Party Grantor Special Needs Trust greatly increases the chance that the person with special needs will remain eligible for government programs, and that funds not used during the beneficiary’s lifetime will be distributed to surviving family members.

If you have any questions or would like to set up or review your trust, please consult a qualified estate planning attorney when deciding how to provide for your loved ones. The attorneys at Danna McKitrick P.C. are prepared to help you plan for your family’s future.

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8 Responses to “The History of Missouri Special Needs Trusts”

  1. carol grady on August 27, 2009 2:14 pm

    Are there any third party grantor special needs trusts that do no require an annual fee or fees for withdrawals?

  2. Misty A. Watson on August 28, 2009 7:20 am

    Carol,
    A grandparent, family member, or friend can setup a third party grantor special needs trust (also known as a supplemental support trust) and agree to serve as trustee without a fee. There are also several nonprofit agencies across the U.S. that do charge a minimal annual fee for administration of the special needs trusts.

    Please let me know if you have any other questions.

    Thank you,

    Misty Watson

  3. Rachel on February 15, 2010 12:49 pm

    Misty,
    Regarding a First-Party Supplemental Needs Trust (has a payback provision)is there any circumstance where payments directly to the beneficiary would NOT be considered income? For example, if money is given to the beneficiary for clothing, and all receipts for all items are kept, is this still direct income or does it become in-kind income since the clothing would be retained past one month? Secondly, what is the risk with having only one Trustee and not two? (Such as an advisory trustee and a fiduciary trustee.)

  4. Misty Watson on February 15, 2010 1:35 pm

    Rachel,

    Any money given directly to the beneficiary would be considered income; however, many trustees circumvent this by purchasing gift cards to the beneficiary’s chosen place to shop for clothing. The risk of having one trustee versus two trustees is very fact specific. For example, if a family member is chosen to serve as the sole trustee, he or she should have the savvy to hire a financial advisor for the trust investments. I do recommend that multiple backups be chosen if the family member would be unable to act as trustee due to the trust being an irrevocable document. As always, this is very general advice and most situations are driven by the facts surrounding the specific needs of the beneficiary.

    Thank you.
    Misty Watson

  5. Judith A Peterson on August 10, 2010 8:01 pm

    My sister died and we are getting between $2000 and $3000 from her estate for my brother who is mentally handicapped. I am my brother’s legal guardian. I need to prepare for the money to be protected for my brother. What steps do I need to take?

  6. Misty A. Watson on August 16, 2010 7:18 am

    If you are appointed as guardian in a court in the state of Missouri, you will need to report the inheritance to the court and have a conservatorship opened for the court to monitor the expenditure of your brother’s funds. Because the amount is so small, you might considering purchasing something for your brother’s benefit after obtaining the proper court approval. Most likely, your brother would be disqualified for government benefits during the month he receives the inheritance; however, since you will be required to hire counsel in order to complete the conservatorship process, he or she can advise you on that process.

    Thank You,
    Misty Watson

  7. April on August 18, 2010 6:05 am

    We have followed all rules for the Missouri Special Needs Trust and now the Medicaid caseworker is calling to say all the money in the trust is considered income. We consulted an atty and an accountant prior to this call and did not purchase food, clothing, rent or give her cash directly, only non-cash gift cards. What do I do next besides consult the attorney again?

  8. Misty A. Watson on August 18, 2010 7:37 am

    April,
    It sounds like you need to speak with an attorney as soon as possible. You may only have a very limited time to appeal the determination of the Medicaid caseworker. Not all of the money in a trust should be considered income, but the Medicaid worker may be determining the assets of the trust to be an available resource. If the Medicaid worker did not send the trust to Jefferson City for review by the legal department, he or she needs to do so. Since you have not received a written determination at this point, asking whether the trust has been submitted to the legal department would be the first step I would recommend at this time.

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