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Why Create A Trust?

Simply stated, a trust is a legal relationship in which assets are held by one party for the benefit of another party.  Trusts are governed by legal documents that set forth a detailed set of instructions regarding how to preserve and/or when to distribute assets held in the trust to the trust beneficiary or beneficiaries. There are many types of trusts, and each is designed to help achieve specific goals as well as to meet specific needs.  As experienced professionals, we can help you determine which type (or types) of trusts are most appropriate for your situation and goals. The information in this section will provide a great starting point to help in understanding these valuable tools as one is planning for their own future, or for the future needs of a loved one.

Supplemental Needs Trusts

To qualify for many government benefits, there are strict limitations imposed on assets that are directly available to an individual.  So… when an individual is already receiving, or needs to establish eligibility for, government benefits and they can receive or retain assets in excess of the government-imposed limits, one or more of the three (3) types of Supplemental Needs Trusts is a great option.  Once the excess assets have been placed in one of these trusts, they are no longer countable toward the retention of or the qualification for the benefits for which the individual is applying.  These funds can then be used for the benefit of the beneficiary, provided the trustee follows the guidelines set forth by the government agencies to keep the trust from being counted as an available resource.

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Supplemental Needs Pooled Trusts

What is a Supplemental Needs Pooled Trust?

Supplemental Needs Pooled Trusts were created in 1993 by statutes [42 USC § 1396 p (d)(4)(C) and 42 USC § 1917 (d)(4)(A)].  These statutes and regulations permit assets, which would otherwise disqualify an individual from receiving SSI (Supplemental Security Income), or Medical Assistance (some states use MA, Medicaid, or have other names for this benefit), to be placed in a trust account and not render the individual ineligible.  The trust accounts can then be used to supplement the funds and services received from SSI and/or MA.

 

Is this trust right for me?

While this type of trust is often created in reaction to an individual with disabilities having received funds unexpectedly, River Community Fiduciary Services will accept Supplemental Pooled Trust Joinder/Master Trust Agreements that have been completed, dated, and signed, but are not immediately funded.  This is a great financial planning tool that is immediately available to accept any and all excess assets that could render an individual ineligible to retain of become eligible for government benefits.

 

Who can establish this type of trust?

This type of supplemental needs trust can be self-established as well as self-funded.  The individual can transfer assets that would otherwise make them ineligible for government benefits into a sub-account that is opened in a common fund.  The trust can be established by the individual (beneficiary), a parent, grandparent, legal guardian, or a court, all of whom are permitted to act as Settlor.

 

How they work…

Since these trusts were established by statue, they must meet very specific criteria:

  1. The trust must be established and maintained by a non-profit organization.
  2. Assets are pooled for investment purposes but accounted for in separate sub-accounts.
  3. Accounts are for sole benefit of individuals with disabilities as defined in 42 USC § 1382 c(a)(3).
  4. The trust can be established by the individual (beneficiary), a parent, grandparent, legal guardian, or a court, all of whom are permitted to act as Settlor.
  5. At the time of the beneficiary’s death, to the extent that funds are not retained by the trust, any remaining funds are first used to pay back a state, or states that have provided Medical Assistance benefits received by the beneficiary.

 

There is no look-back period on the transfer of an individual’s assets into a pooled trust, and assets placed in a pooled trust are no longer considered available assets that can negatively affect an individual’s eligibility to receive government benefits.  The funds in the pooled trust can then be used throughout the beneficiary’s life to supplement governmental supports.

 

 

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Supplemental Needs Third Party Trusts

What is a Supplemental Needs Third Party Trust?

The Third Party Funded Supplemental Needs Trust permits a family to plan and financially provide for an individual with disabilities without affecting the individual’s eligibility for government benefits.  This type of a trust is a very effective tool, but it requires very careful advance planning.

 

Is this trust right for me?

It is very important to remember that a Third Party Funded Supplemental Needs Trust cannot be self-funded.  Once an individual is entitled to receive assets, this type of trust cannot be established.  A parent can set up a Third Party Funded Supplemental Needs Trust in their will and leave assets to that trust for the benefit of a child with disabilities.  If the parent were to leave the assets directly to the individual with disabilities instead of leaving the asset to the trust, a Third Party Funded Supplemental Needs Trust cannot be established because the individual is now entitled to those assets.

 

Who can establish this type of trust?

These trusts are created and funded by a third party (the Settlor), someone other than the individual with disabilities, the individual’s spouse, a legal guardian, or a court.  They are often created and funded by relatives and can exist as part of their will (a Testamentary Trust), or they can be created, funded, and funds can be disbursed while the Settlor is still alive (Inter-Vivos Trust).

 

How they work…

The trust will render the individual ineligible for SSI (Supplemental Security Income), or Medical Assistance (some states use MA, Medicaid, or have other names for this benefit) if it can be used for support (basic food, basic housing, or basic medicinal care) of the individual or if the trust requires, a pre-determined amount is to be spent on the individual (i.e. $50.00 per month; all interest income; etc.).  Therefore, the trust must be written to give the trustee discretion to spend or retain funds, but the trustee must be directed to not spend funds in any manner that would reduce or eliminate government benefits the individual is receiving, or may in the future, be eligible to receive.  The trustee can always supplement the individual’s benefits, but never supplant them.  A Third Party Funded Supplemental Needs Trust can have multiple beneficiaries such as other siblings, charitable organizations, etc. but must contain language that protects the eligibility of a beneficiary with disabilities as previously recommended in this paragraph.  The person establishing the trust, the Settlor, can direct who will receive any assets that remain (the residual) in the trust at the time of the disabled beneficiary’s death.

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Supplemental Needs Payback Trusts (Special Needs Trusts)

What is a Supplemental Needs Payback Trust?

A Payback or Special Needs Trust permits assets to be legally sheltered so that an individual with disabilities receiving government benefits is not rendered ineligible.  These trusts were first created by statute in 1993 (they were authorized under 42 USC § 1396 p (d)(4)(A) and are sometimes referred to as “d4A Trusts”).   They are the same for SSI (Supplemental Security Income), or Medical Assistance (some states use MA, Medicaid, or have other names for this benefit).

 

Is this trust right for me?

During the beneficiary’s life, the trust funds must be used to supplement supports received from the government.  The trustee must exercise caution so that the funds are never spent in any manner that reduces or eliminates the individual’s eligibility.  This trust is usually created in reaction to the individual receiving an extremely large amount of funds unexpectedly such as an inheritance, or a personal injury lawsuit.  Each trust is individually created, individually approved, and individually maintained.  (For an effective and inexpensive option to establishing a Payback Trust, please see our information regarding River Communities Fiduciary Services Supplemental Needs Pooled Trust).

 

Who can establish this type of trust?

Since it is established by statute, these trusts must meet very specific criteria:

  1. The Trust is for the sole benefit of an individual who is disabled and under 65 years of age.
  2. The trust can be established by the individual* (beneficiary), a parent, legal guardian, or a court.
  3. At the time of the beneficiary’s death, any residual funds are first used to pay back the state or   states from which the beneficiary received Medical Assistance benefits.

* The Special Needs Trust Fairness Act, (Pub.L. 114 – 255) federal legislation that allows people with disabilities to create their own special needs trusts instead of having to rely on others, is now law.  The measure was included in the 21st Century Cures Act and was signed by President Obama on December 13, 2016.

 

How they work…

This trust can be self-funded and can now be self-created (The Special Needs Trust Fairness Act 12/13/2016 Pub.L. 114 - 255).  As a First Party Trust, it can be self-funded since funds belong to the individual and would otherwise make the individual ineligible for SSI or Medical Assistance (for example an inheritance, life insurance, a personal injury lawsuit settlement, etc.).  Once the funds have been placed in this trust, they are no longer considered countable, available assets.  This type of trust must be irrevocable and only the individual with disabilities can be a beneficiary.  Other persons, including siblings, cannot be beneficiaries.   At the time of the beneficiary’s death, any residual funds are first used to pay back the state or states from which the beneficiary received Medical Assistance benefits.  If there are funds remaining after re-payment to the state or states is made in full, which by the way, becomes less likely the longer the individual lives, the remainder can then be distributed as dictated by the trust.

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Support Trusts

Opposed to a Supplemental Needs Trust that requires that government benefits be supplemented and never supplanted, the language in a Support Trust directs the trustee to provide “first dollar” for the beneficiary’s general support such as food, clothing, and shelter, or the language may be limiting and  may only allow a certain type of support such as an education trust.

 

A support trust can be a mandatory trust or a discretionary trust.  A mandatory trust is the most restrictive form of a trust, where the trustee has no discretion and the trust document specifically sets out in detail how and/or when a beneficiary is supposed to receive the assets held in the trust.   A discretionary trust leaves some amount of discretion with the trustee as to how and/or when the beneficiary receives their benefits from the trust. The amount of discretion in a discretionary trust may be very narrow, extremely broad, or anywhere in between.

Education Trusts

What is an Education Trust?

An education trust is used to set aside money for a loved one's education.  This type of  trust allows the Grantor (the person who transfers their property into the trust) to determine for what type of education the trustee MUST use the trust funds, or the Grantor can allow the trustee to determine the appropriateness of the chosen field education that the beneficiary or beneficiaries may wish to pursue.  The most important thing is that the trust gives the trustee clear direction as to what can and cannot be done with trust funds.

 

Is this trust right for me?

When you establish an education trust, you decide the terms of the trust.  Please consider:

  • Do you want the trust to become operational during your lifetime (a living trust)?
  • Do you want the trust to become operational at the time of your death (a testamentary trust)?
  • Who will control the trust?
  • How the trust property will be used?
  • Who will benefit from the trust?

 

Who can establish this type of trust?

While typically established by a parent, grandparent, or other close relative, anyone one who wishes to make funds available and protect them for a chosen beneficiary or beneficiaries use can establish an education trust.  An attorney will be needed to create the trust as well as to guide the Grantor through the many decisions necessary to properly carry out their wishes through a carefully chosen trustee.

 

How they work…

Since an education trust specifies that trust funds are to be used for education only, in the trust document the Grantor names a trustee and a beneficiary or beneficiaries, and states how trust money is to be used. If the trust is to become operational immediately, upon the establishment of the trust, the Grantor funds the trust by transferring property into it.  If the trust does not become operational until the Grantor’s death, then the trust is funded when the Grantor dies, and assets already identified by the Grantor are transferred into the trust. Once the trust becomes operational, the trustee controls trust property and pays for the beneficiary’s education according to the terms of the trust.

Funeral Trusts

What is an Funeral Trust?

A Funeral Trust is a legal agreement in which an individual (Grantor) sets aside a certain amount of money for the specific purpose of providing funeral and burial expenses for themselves or for another person.  By so doing, the funds set aside by the Grantor MUST ONLY BE USED for these purposes.  RCFS strongly recommends that any pre-paid funeral arrangement be established as an Irrevocable Funeral Trust (IFT) which means that the funds are protected by being held in the trust but can be designated to be paid to a specific funeral home at the time of need.

 

Is this trust right for me?

In addition to creating peace of mind by knowing that funeral and burial funds will be available when needed, IFT’s are also an invaluable Medicaid planning tool.  These trusts do not violate Medicaid’s sixty-month (60 month) look-back period.  This means that there is no penalty for creating this type of funeral trust with assets that would otherwise be considered as countable against . For individuals already receiving  Medicaid benefits, or for anyone who is seeking to legally spend down their countable assets so they can meet Medicaid’s asset limit to become eligible for benefits, this arrangement is safest and best.

 

Who can establish this type of trust?

These trusts can be self-established as well as self-funded.  Additionally, they may be established for an individual by a Spouse, a Parent, a Grand Parent, another family member or a friend.  A Power of Attorney, or a Legal Guardian can also establish these trusts.

 

How they work…

Besides helping individuals become eligible for Medicaid benefits, one major additional benefit to establishing an Irrevocable Funeral Trust is that they enable families to pre-pay for the costs of a funeral without having to pay the funds directly to a particular funeral home. Pre-paid funeral plans, pre-need funeral plans, and similar arrangements are usually established through a funeral home.  Like any other business, it is not impossible for funeral homes to go out of business.  Under certain circumstances, families who have pre-paid directly to that funeral home may lose their money.

 

In Pennsylvania, it is up to each county to establish the maximum amount of money that can be placed in an IFT.  These amounts can vary greatly.  In 2019, they ranged from about $7,300.00 to $20,500.00.  Also, under certain circumstances, there is a 25% amount that is allowed for Extraordinary Costs.  It is best to check with the local County Assistance Office to determine the amount you can protect.

 

This list may not cover all ways in which funds can be used, but an IFT can cover a wide variety of final expenses., such as:

 

• Funeral home usage

• Charge funeral director/staff services

• Clergy fee

• Musicians for service

• Death certificate

• Printed Death Notices

 

 

 

• Dressing and casketing

• Clothing

• Makeup and hairstyling

• Cremation

• Urn

• Flowers

• Travel expenses for relatives to  come to the funeral

• Embalming

• Casket / Burial vault

• Burial plot

• Headstones / Monuments

• Cemetery fees

• Hearse / Limousines

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"Improving Lives  ̶  Protecting Futures"

"Improving Lives  ̶  Protecting Futures"

Our experienced and compassionate team will help you preserve and manage your assets or find the Human Services and supports of which you may not be aware. We have extensive experience in trust administration, social services and government benefits. Call for a free consultation.

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© Copyright 2020  by River Communities Fiduciary Services, Inc. All rights reserved.

Support RCFS on Amazon:

As your one-stop resource, we work hand in hand with individuals with disabilities, their families, medical providers, attorneys and social workers. Let us help you find long-term security and support for you or your loved one’s assets and future.

As your one-stop resource, we work hand in hand with individuals with disabilities, their families, medical providers, attorneys and social workers. Let us help you find long-term security and support for you or your loved one’s assets and future.

Support RCFS on Amazon:

Your One-Stop Resource. Call today

As your one-stop resource, we work hand in hand with individuals with disabilities, their families, medical providers, attorneys and social workers. Let us help you find long-term security and support for you or your loved one’s assets and future.

As your one-stop resource, we work hand in hand with individuals with disabilities, their families, medical providers, attorneys and social workers. Let us help you find long-term security and support for you or your loved one’s assets and future.

Support RCFS on Amazon:

As your one-stop resource, we work hand in hand with individuals with disabilities, their families, medical providers, attorneys and social workers. Let us help you find long-term security and support for you or your loved one’s assets and future.

As your one-stop resource, we work hand in hand with individuals with disabilities, their families, medical providers, attorneys and social workers. Let us help you find long-term security and support for you or your loved one’s assets and future.

Support RCFS on Amazon:

As your one-stop resource, we work hand in hand with individuals with disabilities, their families, medical providers, attorneys and social workers. Let us help you find long-term security and support for you or your loved one’s assets and future.

As your one-stop resource, we work hand in hand with individuals with disabilities, their families, medical providers, attorneys and social workers. Let us help you find long-term security and support for you or your loved one’s assets and future.

Support RCFS on Amazon:

© Copyright 2020  by RCFS, Inc. All rights reserved.

As your one-stop resource, we work hand in hand with individuals with disabilities, their families, medical providers, attorneys and social workers. Let us help you find long-term security and support for you or your loved one’s assets and future.

As your one-stop resource, we work hand in hand with individuals with disabilities, their families, medical providers, attorneys and social workers. Let us help you find long-term security and support for you or your loved one’s assets and future.

Support RCFS on Amazon: