Special Needs Trusts - The Good Shepherd Fund

Special Needs Trusts
___________________________

The Good Shepherd Fund is trustee for more than 225 special needs trusts and trust accounts and is named in the wills of many more families to be trustee in the future. Beneficiaries live in California, Oregon, Washington, Colorado and Arizona. The Fund will consider being trustee for beneficiaries living in other western states.

Frequently Asked Questions

Why have a Special Needs Trust?

A special needs trust has been described as a “parent’s pocket” - a resource that can provide funds for an individual with disabilities to pay for the type of expense that a parent would just reach into the pocket to cover. Examples are dental bills, summer camp, or a plane ticket to visit family.

Special needs trusts are designed to supplement, not to replace, basic support provided by various government programs that are intended to provide food, clothing, and shelter.

What form does the Special Needs Trust take?

The Good Shepherd Fund offers two types of special needs trusts: an individualized trust and a Pooled Trust.

Individualized Special Needs Trust

An individualized special needs trust is also called a third party trust as the funding comes direct from a third party, typically parents or other family members, and goes directly into the trust.
An individualized special needs trust is appropriate when there is a co-trustee or some other unique provision, or when the trust language is embodied in a will or living trust.
Government entities have no access to these funds during or after the beneficiary's lifetime.
The Good Shepherd Fund or other named charity may be named in the trust to receive any remaining assets in the trust upon the death of the beneficiary.

The Good Shepherd Fund Pooled Trust

A trustor sets up the trust by joining the Pooled Trust through a Joinder Agreement. All that is needed is basic information; the process is straight-forward.
The Pooled Trust is a “d(4)(C)” irrevocable discretionary special needs trust set up to receive accounts which can be funded with the assets of a disabled beneficiary (such as accident settlements, or personal funds of the beneficiary including gifts or inheritances previously distributed to the beneficiary.)
The Pooled Trust can also be used to receive funding directly from third parties (such as gifts or inheritances from family members not yet distributed to the beneficiary.)
Funds are pooled for investment but individual accounts are maintained for each beneficiary.

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.

Special Needs Trust Terminology

The trustor sets up the trust. The trustor can be the parent, grandparent, legal guardian or court, or in the case of a “d(4)C)” trust, the disabled individual himself or herself. The trustee administers the trust. The beneficiary is a person with disabilities who receives distributions from the trust. Distributions can be made from the earnings of the trust (interest, dividends, capital gains), and generally from the principal of the trust.

What are “Special Needs”?

Special needs are items, not provided by government support or a private health plan, which enhance the individual’s life, health, and welfare. Examples of distributions are:

Dental, medical, and pharmaceutical expenses not covered elsewhere.
Therapy or rehabilitation services.
Wheelchairs and other special equipment not covered elsewhere.
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.

Will a Special Needs Trust put government support at risk?

No. The trusts are specifically set up to supplement, not replace, basic government support for the individual’s needs. Indeed, the trustee is typically restricted from making a distribution that might jeopardize public benefits.

Can there be a Co-Trustee?

For individual trusts, The Fund may act as Co-Trustee in appropriate instances if so requested. However, the Good Shepherd Fund Pooled Trust is not set up for co-trustees.

Why select The Good Shepherd Fund as trustee?

First, experience: The Good Shepherd Fund has been trustee of special needs trusts since they first came into existence more than 25 years ago and is currently trustee for more than 225 beneficiaries. Second, The Fund is a corporation. There are distinct advantages to having a corporation rather than an individual as trustee:

An individual may die or be unable to perform the trustee’s duties. A corporation provides continuity and will always have staff in place to ensure that the beneficiary’s needs are met.
The Fund provides professional money management and investment services, including tax filings.
All trust funds are audited annually.

Does The Good Shepherd Fund act as trustee for beneficiaries with all types of disabilities?

No. The Fund specializes in services to individuals with developmental disabilities and related disabilities.

When should the trust be set up?

Some families like to have the trust set up and in place now with some initial funding. This provides peace-of-mind and allows a family to see how the trust works and will continue working after they are gone. Typically, the bulk of the trust funding comes later through the will and estate.

Other families like to set up the trust through the will (or living trust) with funding through the will (or living trust). The trust language is contained in the will or living trust and becomes effective on the day of death.

Regardless, families should consult with their attorney to draw up and review the trust document.

How long does it take to set up a special needs trust?

An account in the Pooled Trust that meets the Fund’s criteria can be established in a matter of days.

An individual trust that needs to be drafted/ reviewed by the family attorney will depend upon that attorney’s schedule. Once the trust is prepared, it can be established as soon as it is signed and at least minimally funded.

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?

The earnings of the trust are taxable. For third-party trusts, the trustee prepares a Federal and State return under an EIN number that is assigned to each trust. For the pooled trust, the trustee supplies a K-1 report on earnings of the trust to the beneficiary.

Are contributions to a Special Needs Trust tax-deductible?

No. Contributions to a special needs trust are generally not eligible for a charitable deduction.

If the Good Shepherd Fund is named as remainder beneficiary after the death of the individual with disabilities, there may be a charitable deduction to a taxable estate. Contact your tax advisor or The Good Shepherd Fund for more information.

What are the trustee fees?

Please contact the Fund office for more information at (408) 573-9606.

Are there other costs?

In addition to a trustee fee, there are charges to the trust for investment management fees and tax return preparation costs. In all instances, the Fund, a non-profit organization, works to keep fees and costs at a very reasonable level.

Since the pooled trust uses a master trust already established, the legal expense of drafting an individual trust for each beneficiary is avoided. However, there still may be legal expenses incurred by the trustor in having an attorney assist in reviewing the master trust and joinder agreement on behalf of a beneficiary, or in regard to funding an account.

Are trusts at The Good Shepherd Fund bonded?

Yes, if so requested by a family or a court. Most families do not require this added expense. If a trust is court supervised, it typically is bonded. The Fund carries general liability, trustee liability, and directors and officers liability insurance, and also commercial crime insurance, well in excess of the value of the typical trust. The Fund is also audited annually.

How are distributions from the trust handled?

Distribution requests come from the beneficiaries themselves, their family, their guardians or conservators, their care providers, and sometimes from case managers. Staff works with that individual to ensure that the requested expense is a “special need” and is an appropriate expenditure. An extra level of review is provided for SSI recipients to help ensure that SSI regulations are followed. The vast majority of requests are approved and funded promptly by check. For major expenses or for recurring bills (e.g., phone, cable, pharmacy, utilities), staff will arrange for the invoice to go directly to the Fund. A regular allowance or bill payment can also be arranged.