Maryland Attorney for Special Needs Trusts
Trusts are a good way to protect assets and support loved ones for the future. If you want to provide money and resources for a loved one with special needs or yourself, our attorneys can help you create a special needs trust.
These types of trusts are specifically designed to help disabled individuals cover expenses associated with their condition. However, you can design a trust for almost any legal purpose, so we can help draft a trust that pays for other costs, like housing, education, and entertainment. The major benefit of putting your assets in a special needs trust is that it will allow you or your loved one to keep receiving government assistance for the disability. Government assistance programs like Social Security disability and Medicare place strict income and asset limits on recipients and will cut their benefits off if they have other sources of income. The money in a special needs trust is not considered their money, and the incomes it pays them are limited so that loved ones can receive money from the trust while keeping their benefits.
For a free and confidential case consultation with our attorneys for special needs trusts, call Rice, Murtha & Psoras at (410) 694-7291.
How a Special Needs Trust Can Help You Protect a Loved One in Maryland
Trusts are legal instruments that individuals can set up for various reasons, such as protecting financial assets and providing for loved ones. A “grantor,” the person who owns the assets to be used, designates a “trustee” to manage the trust on behalf of a “beneficiary.” Maryland also uses the term “settlor” when referring to grantors of a trust, but the terms are interchangeable.
A “special needs” trust is typically set up for the benefit of a disabled loved one so that money is set aside for their needs that you can manage. Essentially, they can be established to do whatever the grantor intends their assets to be used for and select who should benefit and who should manage it, as long as it complies with the law. In fact, Maryland law specifically encourages the use of special needs trusts. According to Md. Code, Ests. & Trs. Art., § 14.5-1002(b), Maryland actively promotes the use of special needs and supplemental needs trusts for disabled individuals of any age in order to address the needs that public benefits might not cover and enhance their quality of life.
What Special Needs Trusts Do
Many people think of trusts as a way for wealthy individuals to insulate their assets from the IRS or provide their children with the means to finance a lavish lifestyle. While some are used for those purposes, a special needs trust is a type of trust fund that is used for arguably more noble purposes. If you have a loved one, like a child, spouse, sibling, or any other disabled individual you want to help, our attorneys for special needs trusts can help create a trust that addresses all your beneficiary’s needs. We can help you designate a trustee and how the trust should be handled when you pass.
You have a great deal of say in the scope of the trust. You can designate anyone you trust to manage the funds, including yourself. If you do decide to manage the trust, you can still specify a party to be named as the trustee in the event you pass unexpectedly. You can even pass on the trust to the beneficiary. However, it is best to keep the trust in place so that your loved one does not have the added stress of managing it. In any case, your trust can be set up to take care of everything the beneficiary needs, whether you are still around to manage it or not.
How Special Needs Trusts Help
Special needs trusts are helpful because they can be tailored to provide whatever specialized care your beneficiary’s disability calls for. For instance, a beneficiary with an intellectual disorder will likely require different care and resources than one with a progressive neurological disorder. We can draft your trust so that the trustee knows exactly what care should be covered. You can arrange for just about any other expenses to be paid by the trust, including rent, clothing, education, and anything else that you think would help your beneficiary live a full life.
A special needs trust can also provide financial support to your beneficiary without disqualifying them from any government assistance programs from which they might receive monthly benefits. Programs like Medicaid, Medicare, Social Security’s disability programs, and many others require disabled individuals to remain below certain income levels or lose their benefits. If you were to simply give large sums of money directly to a loved one to use as they need it, it would be considered part of their assets when it comes to analyzing need for means-tested programs like SSI and Medicaid. Fortunately, a special needs trust can provide the beneficiary with incomes that help support them but keep them under the limits they need to keep getting their need-based program benefits.
Types of Special Needs Trusts and How They Work in Maryland
Depending on your situation, our attorneys can help you choose the best option among the different types of special needs trusts. Third-party special needs trusts are common, where one party provides financial support for another person. However, disabled individuals can create first-party special needs trusts to protect assets they inherited or received in a settlement. Non-profit organizations can also create and manage pooled special needs trusts to give support to multiple beneficiaries.
Third-Party Special Needs Trusts
Third-party trusts are used by individuals planning in advance for another, typically a loved one with special needs. For instance, the parents of a disabled child can establish a third-party trust to see to their current and future needs. However, grandparents, aunts, uncles, siblings, or anyone else can establish a third-party trust.
Third-party trusts can be included in a final will or established within an inter vivos trust, also known as a living trust. Both are designed to avoid the probate process. This means the assets of the trust would not be included in the properties and money the probate court distributes to the beneficiaries of the will. Individuals can also establish a stand-alone trust that is not connected to a will. The two types of third-party trusts operate very differently, so it is best to consult with our attorneys to determine which suits your circumstances.
Trusts established through a final will or within an inter vivos trust only become effective after the person who created them dies. This generally means they cannot accept contributions until then. In contrast, a stand-alone trust is beneficial when multiple donors want to contribute. Unlike the other types, a stand-alone trust is active during the lifetime of the person who sets it up, allowing it to receive contributions from grandparents, family friends, or even the creator of the trust before their passing.
First-Party Special Needs Trusts
First-party trusts, commonly referred to as “self-settled” special needs trusts, are funded by the trust’s beneficiary. These trusts are actually authorized under federal law, specifically 42 U.S.C. § 1396p(d)(4)(A). Up until 2015, only a parent, grandparent, legal guardian, or court order could create a first-party trust containing the beneficiary’s assets. Fortunately, Congress passed the Special Needs Trust Fairness Act in 2015, which amended the law to include the individual as someone who can establish a trust for their own benefit.
First-party trusts are primarily utilized when a special needs individual either inherits money or property or receives a settlement from a court case. For instance, if the disability results from an accident and the victim is awarded damages in a lawsuit, they can place the proceeds of the suit in a first-party trust so that it is not considered income. They also come in handy for someone who develops a disability later in life and needs to qualify for public benefits that impose the income restrictions discussed above.
However, individuals must be legally and mentally competent at the time of the trust’s creation if establishing their own. The beneficiary of the trust must also be under the age of 65 when it is created and must meet the federal government’s definition of “disabled,” as defined by § 1382c. The trust can also only be established for the sole benefit of its beneficiary and cannot be designated to support others.
Pooled Special Needs Trusts
“Pooled” special needs trusts are quite different from the previous two that were just discussed. Instead of a loved one or the beneficiary managing the trust, a non-profit organization manages and administers it on behalf of several beneficiaries.
According to § 1396p(d)(4)(C), each trust beneficiary must have a separate account, but the accounts can be pooled to invest and manage the funds. Like the trusts above, a pooled trust must also be solely for the benefit of qualifying disabled individuals. If the beneficiary still has funds available in their account at the time of their death, the trust does not automatically retain the funds. Instead, the trust must first reimburse the state for any medical assistance program benefits they received, like Medicare or Medicaid. Fortunately, neither Maryland nor federal law places an age limit on the beneficiary of a pooled trust, so they can be funded even if they are 65 or older.
How to Set Up a Special Needs Trust in Maryland
While the requirements to create a special needs trust are not as strict as those for other legal instruments, some must be met for the trust to be legally valid. Our team can explain what acts can create your trust and other legal requirements it must meet.
Acts to Create the Trust
A few acts can create a special needs trust under Md. Code, Ests. & Trs. Art., § 14.5-401.
First, you can transfer property to another person as a trustee during your lifetime or through your will or other disposition that takes effect upon your passing to create the trust.
A property owner can also declare that they hold the property as a trustee to establish the trust. The declaration can be recorded in a written legal instrument or by oral agreement, as per § 14.5–406. However, “oral trusts” and their terms can only be established by “clear and convincing” evidence. While this evidentiary standard is lower than the “beyond a reasonable doubt” standard used in criminal cases, you must prove that it is much more likely to be true that the oral trust was created the way you intended if it is challenged later. We highly recommend a written document to establish the trust since the court can simply refer to a written declaration if challenged.
Lastly, you can create trust by exercising your power to appoint a trustee. Put simply, if you appoint someone as trustee, the trust is established.
Additional Legal Requirements to Create the Trust
There are other legal requirements to create a special needs trust. According to § 14.5–402, the grantor must have the mental capacity to create the trust and indicate their intention to create it, like drafting a declaration.
The trust must also have a definite beneficiary, meaning that the person is known now or can be ascertained in the future. Trusts typically cannot be set up to support vague groups of unidentified disabled individuals. Unless it is a charitable trust, it must be created for a specific individual. However, a trust can be created so that the trustee has the power to select a particular beneficiary from an indefinite class at a later date is considered valid.
A trustee must also have specific duties to perform under the trust. If the powers of the trust are not exercised in a reasonable amount of time, the power fails, and the assets of the trust will be passed on to whoever has the legal right to the property. Our team will examine your circumstances and needs so that your trust meets these requirements and your loved one has the protection you intend.
Contact Our Attorneys for Special Needs Trusts in Maryland for Help Today
For a private and free case review with our attorneys for special needs trusts, call Rice, Murtha & Psoras today at (410) 694-7291.