What is a Special Needs Trust?
A special needs trust is a trust specifically tailored for a beneficiary that has mental or physical disabilities.
Special needs trusts are designed to supplement, not replace, basic support provided by various government programs that are intended to provide food, clothing, and shelter.
What are “Special Needs” exactly?
Special needs are items that enhance the beneficiary’s life, health and welfare. These items are not provided by government support or by a private heath plan. Examples include:
- Dental, medical, and pharmaceutical expenses
- Therapy or rehabilitation services.
- Wheelchairs and other special equipment
- Travel (which can include the cost of a companion.)
- Psychological or counseling services.
- Recreation and entertainment (summer camp, beach trips, airfare to travel home, spending money for movies or social events, videos, sports equipment).
- Social activities including meal expenses.
- Legal or guardianship expenses.
- Burial or cremation expenses.
Why have a Special Needs Trust?
Special Needs Trusts are powerful financial tools that are often used to:
- Protect the assets of a loved one while retaining eligibility for needed government benefits.
- Protect the beneficiary from predators who target the persons living with disabilities demographic.
- Assign a reputable trustee to look after the beneficiary and his/her assets.
- Protect the beneficiary from claims that others, including family members, may make on the beneficiary’s assets.
- Protect the beneficiary from making poor financial decisions due to a lack of capacity, immaturity, or good but naïve nature.
Are there different types of Special Needs Trusts?
Special Needs Trusts are a type of trust used to shelter assets in order to help a person living with disabilities retain government benefits. In addition to the classic Special Needs Trust, the Good Shepherd Fund also works with Charitable Remainder Trusts, Pooled Trusts, Endowments/Annuities, and other specialized financial vehicles.
What is a “d(4)(C)” trust?
Created under Federal law enacted in 1993 (42U.S.C 1396p), the term “d(4)(C)” stems from the subsection of the law which exempts certain special needs trusts established for the sole benefit of a disabled individual under age 65 so they are not counted as resources of the beneficiary under Medicaid and SSI programs. The trustee has the discretion to pay out for the benefit of the beneficiary the trust income and principal to meet those needs not otherwise provided by public benefits.
The statute requires that the “d(4)(C)” trust be a pooled trust established and maintained by a nonprofit association. The Good Shepherd Fund is a qualified 501 (c)(3) non-profit organization recognized as tax-exempt by the IRS.
The trust is established by opening an account with the Pooled Trust. The Good Shepherd Fund provides a Joinder Agreement for this purpose.
Upon the beneficiary’s death, any remaining trust assets (other than those contributed directly from third parties) are payable to the State Medicaid plan to the extent of medical assistance paid on behalf of the beneficiary.
Why choose Good Shepherd Fund as a trustee?
There are many reasons to choose GSF. First, we have basically been administering Special Needs Trusts since they came into being. Our company has been around that long! Second, we group the standard services and know what we’re doing around bank reconciliationis, tax filings, other IRS issues, and the regulatory enviornment. Finally, trusts administered by GSF are always scrutanized by annual 3rd party audits and the added layer of oversite that comes by way of our non-profit status with the IRS.
In addition, we are large enough to support other periphral needs you may have as you/your loved one age. These may include guardianship services, case mananagement services, representative payee services, etc. Good Shephrd Fund is a compassionate, long-standing, reputable, stable company. Why go elsewhere?
When should a trust be set up?
Every family is different in their preferences in when to set up their trust. Some families prefer to have the trust set up and in place as soon as possible. This allows them to see how the trust works with time and gives peace of mind for the future.
Typically, the bulk of the funding comes into action later on in the will and estate. Other families prefer to set up a trust though the will or living trust with funding coming from the will.
We recommend that families consult with their attorney and review a trust document.
We are always here to help answer any questions, just give us a call!
How long does it take to set up a trust?
This depends on what type of special needs trust you and your family decides upon. An account in the Pooled Trust can be established within a matter of days once it meets the Fund’s criteria.
Trusts that are drafted by an attorney will need to be reviewed by our attorneys to assure that they meet the criteria for a Special Needs Trust. Once the language is established, the funding and execution can be done as quick as you’d like.
How are the funds invested?
The funds are invested by the Finance Committee of the Board of Trustees under the guidance of investment professionals. Funds are currently invested through UBS Financial Services, Inc., an international investment management firm. Funds may be pooled for investment purposes to reduce costs and enhance earnings but individual accounts are maintained for each trust.
Investments are diversified and conservative and are allocated to stocks, bonds and cash accounts. Larger accounts are assigned to investment managers while smaller accounts are invested in mutual funds.
All funds managed by The Good Shepherd Fund are audited annually. Auditors are rotated at least every five years. Audit reports are available on request.
Are Special Needs Trusts taxable?
Yes, the earnings of the trust are taxable. For individualized trusts, the trustee prepares both a Federal and State return under an EIN number that is assigned to them.
For the Pooled Trust, the trustee supplies a K-1 report of earnings of the trust to the beneficiary.
What costs are involved?
Goods Shepherd Fund has a competative fee structure
Since we are a non-profit organization, we work to keep all costs at a reasonable price. However, there are some fees involved. There are trustee fees, investment management fees and tax return preparation costs. It is good to note that the pooled trust uses a master trust that has already been established therefore avoiding any legal expenses in drafting a trust.
There may still be some additional legal costs by the trustor if they wish to have an attorney review the master trust and joinder agreement on behalf of the beneficiary.
If you have question regarding the actual cost, contact us at (408) 573-9606.
How are the distributions of the trust handled?
Distribution requests can come from the beneficiaries, their families/legal guardians, their care providers, or some instances their case managers. Our staff works with the individual to ensure that the request is a special need and follows SSI regulations. The majority of requests are approved and funded by check.
For major expenses and recurring bills (e.g. utilities, pharmacy, phone, cable), the staff will arrange for the invoice to go directly into the fund. If so desired, a regular allowance or bill payment can be arranged.
How do distributions work?
The short answer: The beneficiary (or his/her advocate, parent, grandparent, guardian, friend, etc.) makes a request to Good Shepherd Fund and asks for something to get paid for. Maybe its a trip, maybe a bill of some sort, or maybe a piece of medical equipment. Once we get the request, we process it by assessing whether or not the expense will adversely affect the Beneficiary’s public benefits first. Then we assess it for legitimacy. Once we ascertain that the request is both approved and legitimate, we send payment.
How long does it take to get an approved distribution?
Most requests can be assessed on the spot, approved, and sent to accounting. If we are making a payment by check, it will be mailed within one week. If we are making a payment by card, it can normally happen same-day.
For requests that require court approval (large asset pruchases) or Fiduciary approval, the timeline varies.
How do I make a distribution request?
You make a request by either sending an email/fax, calling the office, or by mailing your request to our offices in San Jose, California.
What is a Professional Fiduciary?
A Professional Fiduciary is a person who is licensed by the State of California and authorized to make decisions on behalf of managed assets. We employ a Professional Fiduciary who oversees the administration of all of our trust funds. In essence, a Professional Fiduciary is a second pair of eyes on the trust fund accounts, here to assure that the funds are managed appropriately.