1. SPECIAL NEEDS TRUSTS: NOT JUST A FORM! Presented to the Missouri Bar/Missouri Judicial Conference Annual Meeting St. Louis, Missouri October 18, 2012 Christine A. Gilsinan Attorney at Law 34 North Gore Avenue, Suite 103 Webster Groves, MO 63119 Telephone: (314) 962-0760 and Martha C. Brown Attorney at Law Martha C. Brown and Associates, LLC 220 West Lockwood, Suite 203 St. Louis, MO 63119 Telephone: (314) 962-0186 Missouri Bar Annual Meeting, October 18, 2012 1

2. Example 1 Text “After the death of the primary beneficiary, the residuary shall be paid, free from trust, to the Treasury of the United States.” Missouri Bar Annual Meeting, October 18, 2012 2

3. Example 1 Discussion A first-party, self-settled special needs trusts is required to contain a “payback clause.” 42 U.S.C. § 1396p(d)(4)(A). HOWEVER, this “payback clause” (payment to the US Treasury) is required ONLY if recovery was from the National Vaccine Injury Compensation Program (42 U.S.C. Section 300aa(Supp. II 2009). That is the only kind of SNT that requires the residuary be paid to the U.S. Treasury. Missouri Bar Annual Meeting, October 18, 2012 3

4. Example 2 Text “The trustee shall not, under any circumstances, make payments from the trust estate for the Beneficiary's food, shelter or clothing.” Missouri Bar Annual Meeting, October 18, 2012 4

5. Example 2 Discussion Social Security removed the prohibition of payment for clothing in 2005 but this trustee is bound by the language of the trust unless the trust is reformed. It is important to avoid specific terms like clothing. Social Security can change its internal rules at any time. Missouri Bar Annual Meeting, October 18, 2012 5

6. Example 3 Text In this trust, the following facts apply: – The Grantor is the Trust Beneficiary. – The Grantor/Beneficiary was born on 12/25/1940. – The Grantor/Trust Beneficiary is unable to afford private health insurance. – The Grantor/Trust Beneficiary is not disabled. Missouri Bar Annual Meeting, October 18, 2012 6

7. Example 3 Discussion A first party special needs trust may be established and funded for anyone under the age of 65. 42 USC Section 1396p(d)(4)(A) The trust beneficiary must meet the Social Security Act's definition of disability. Section 1614(a)(3) of the Social Security Act. Missouri Bar Annual Meeting, October 18, 2012 7

8. Example 4 Text "The Trustees shall pay to or use for the benefit of the trust beneficiary as much of the net income and principal of the trust as the Trustees, in their discretion, deem necessary for the support, maintenance, health and education of the trust beneficiary" Missouri Bar Annual Meeting, October 18, 2012 8

9. Example 4 Discussion HEMS language is support language which can be construed to supplant public benefits. See the Tidrow decision, 688 S.W. 2d 9 (Mo App E.D. 1985). Tidrow was litigated over the support language in the trust. Suggestion: avoid language which includes support. Missouri Bar Annual Meeting, October 18, 2012 9

10. Example 5 Text In this trust the following facts apply: – The client wants to set up a trust for his disabled niece. – The lawyer uses the last trust he drafted as a template, and has his assistant change the names of the grantor/beneficiary/trustee. – The trust is a third party trust. – The trust is funded with the assets of the niece. Missouri Bar Annual Meeting, October 18, 2012 10

11. Example 5 Discussion Third Party Special Needs Trusts are created with the assets of a third person who has no legal duty of support. See Tidrow case. Special Needs Trusts which are created with the assets of the trust beneficiary must be created pursuant to 42 U.S.C. Section 1396p(d)(4)(A). Missouri Bar Annual Meeting, October 18, 2012 11

12. Example 6 Text In this trust the following facts apply: – Established for one under age 65, who is disabled under the relevant statute. – Meets the requirements of 42 U.S.C. Section 1396p(d)(4)(A). – Names as trustee a neighbor who is close to the beneficiary’s family, but has no work experience. Missouri Bar Annual Meeting, October 18, 2012 12

13. Example 6 Discussion It is important to name as trustee a person or corporate entity that will appreciate the seriousness of the government benefits that the trust beneficiary needs to preserve. If the proposed trustee is unable evaluate the benefits programs and is unable to seek appropriate assistance, then that proposed trustee is a poor choice. Missouri Bar Annual Meeting, October 18, 2012 13

14. Example 7 Text “The Trustee may terminate the special needs trust at any time as determined by the trustee and the remaining trust estate shall be distributed to the trust Beneficiary free from trust.” Missouri Bar Annual Meeting, October 18, 2012 14

15. Example 7 Discussion SI 01120.199 of the POMS prohibits early termination provisions which do not require payback to MoHealthNet upon early termination. Missouri Bar Annual Meeting, October 18, 2012 15

16. Example 7 Discussion Cont’d Missouri Bar Annual Meeting, October 18, 2012 16

17. Example 8 Text “The trustee is authorized to expend so much of the trust funds as the trustee deems advisable to pay for parental caregiving.” “The trustee is authorized to expend so much of the trust funds as the trustee deems advisable to pay for the travel expenses of the beneficiary’s parent to accompany the beneficiary on a trip.” Missouri Bar Annual Meeting, October 18, 2012 17

18. Example 8 Discussion The Social Security Administration is rejecting trusts with these clauses because they violate the parental duty to care and provide for the child. NO POMS has been issued about this; rather, these clauses are determined to violate the sole benefit rule. See POMS SI 01120.201F. Missouri Bar Annual Meeting, October 18, 2012 18

19. Example 8 Discussion, Cont’d Missouri Bar Annual Meeting, October 18, 2012 19