Irrevocable Non-Grantor Trust Question.

[GoodTrustho]

I have to form irrevocable non-grantor trust for a friend of mine, who lives in NY. I live in CT.
Cannot give him money directly as it will disqualify him from SSI.

Will also list his wife and child as beneficiaries.

Spoke to 3 lawyers who specialize in trusts and all said that it would not disqualify him unless a distribution is made to him, and even then it would only lower his SSI payment by the amount he receives from the trust and only for that month.

The SSI rules however specifically state that any portion of the trust from which a payment could be made is considered a resource.

Am I missing something?

Please advise,

Thanks.

 

[Taxing Matters]

Am I missing something?

If you do the trust correctly as a special needs trust it won't count against him except to the extent that distributions may cause him to go over the SSI income/asset limit. Should that occur, he will lose benefits for a while until the lost benefits equals the amount of income/assets that disqualified him from SSI. I strongly recommend that you have an attorney who pratices in trusts to draft that trust for you to ensure you get it right.

 

[GoodTrustho]

I'm fully aware of that, but as I stated in my opening post this has to be a non-grantor irrevocable trust with additional beneficiaries listed, which would not make it possible for it to be a special needs trust.

Moreover, as all the 3 lawyers I spoke to said irrevocable non-grantor trust would not disqualify him, when ssi rules specifically state they do.
Please see my original post.

 

[Zigner]

I'm fully aware of that, but as I stated in my opening post this has to be a non-grantor irrevocable trust with additional beneficiaries listed, which would not make it possible for it to be a special needs trust.

Moreover, as all the 3 lawyers I spoke to said irrevocable non-grantor trust would not disqualify him, when ssi rules specifically state they do.
Please see my original post.

3 lawyers and a handful of random and anonymous folks are giving you answers that aren't what you want to hear...
I'm not sure what else you expect to be told.

Keep looking for lawyers to agree with you. Best of luck!

 

[Litigator22]

I have to form irrevocable non-grantor trust for a friend of mine, who lives in NY. I live in CT. . . . Am I missing something?

Are you missing something? Could it be that you've overlooked the fact that if not licensed to practice law in the state of New York, you'd be guilty of committing a Class E Felon?! *

[*] See: New York Consolidated Laws. Title 8 Article 130 Section 6512 (Caption) "Unauthorized practice a crime" and New York Judiciary Law Section 476(d)

 

[Taxing Matters]

I'm fully aware of that, but as I stated in my opening post this has to be a non-grantor irrevocable trust with additional beneficiaries listed, which would not make it possible for it to be a special needs trust.

Moreover, as all the 3 lawyers I spoke to said irrevocable non-grantor trust would not disqualify him, when ssi rules specifically state they do.
Please see my original post.

It's important to understand that there are two kinds of special needs trusts (SNTs): the first party SNT and the third party SNT. The first party SNT is one that is funded with assets of the individual receiving the benefits, including money won from personal injury lawsuits, etc. The third party SNT is funded entirely by funds provided by someone else (i.e. not a penny in the trust is provided by the person receiving benefits (the beneficiary). The rules for each are different. Both have to restrict the kinds of things that will be provided to the beneficiary and provide that the trustee controls the distributions; the beneficiary cannot have any control over the distributions made.

But the first party SNT must have provisions in it that it is irrevocable, created for the sole benefit of the beneficiary, and that upon death of the beneficiary the funds remaining in the trust must first to to repay the government for the amounts the government expended for the care of the beneficiary.

The third party SNT does not have those same restrictions because no assets of the beneficiary are funding the trust. The trust can even be revocable by the grantor (the third party setting up and funding the trust) or otherwise a grantor trust during the grantor so long as those powers are not granted to the beneficiary. The third party trust does not have to have a provision requiring repayment to the government at the time of the beneficiary's death and the trust can have other beneficiaries that take the balance of the trust after the disabled beneficiary dies.

So, if I understand your situation correctly — you are the one wanting to give a gift to your friend in way that won't disqualify your friend from SSI and Medicaid benefits the third party SNT would seem to do what you want, including having those alternate beneficiaries. This is likely what those lawyers you talked to had in mind. Note that many of the SSA internet pages on SNTs focus on first party SNTs, though they don't always say that directly. Of course the first party SNT would not meet everything you want to do, but as long as you aren't using any assets of the disabled person to fund the trust, you don't need to do a first party SNT.

Understand that because Medicaid is a joint federal state program the exact details of what the trust will need to provide can vary from state to state, so you'd want to consult an attorney in the beneficiary's state that has experience with third party SNTs to ensure you get it right.

 

[Taxing Matters]

Are you missing something? Could it be that you've overlooked the fact that if not licensed to practice law in the state of New York, you'd be guilty of committing a Class E Felon?! *

If I understand the OP's situation correctly — and hopefully he/she will correct me if I'm wrong — then this is not a problem. The OP apparently wants to benefit his/her friend by being the grantor of a trust to benefit his/her friend in a way that won't disqualify his/her friend from SSI and Medicaid benefits. That being the case, he is the one needing the legal advice (i.e. the "client") and not providing legal advice to anyone else. Since one is allowed to represent himself and to do legal things, like setting up trusts funded with his own assets to meet his own objectives (which is very common to see in estate planning for example) without violating the rules against the unauthorized practice of law (UPL) I don't see the OP running into that problem here.

Now, if the OP is advising the disabled person in setting up a first party SNT or advising some other person wanting to set up a trust for the benefit of the disabled person, then I would agree with you that the OP risks sanctions for UPL. But simply setting up a trust on his/her own to fund with his/her assets to achieve his/her goal of benefiting his/her disabled friend would not run afoul of the UPL rules. That said, I certainly recommend that the OP get advice from an attorney experienced with third party SNTs in the state where the disabled person resides to make sure that the trust is set up properly so that it doesn't end up disqualifying the disabled friend from those government benefits.

 

[GoodTrustho]

My question in the original post is still not answered.

Are the attorneys I spoke to wrong in telling me that a non-grantor irrevocable trust, provided the trustee has full unrestricted power in regards to distributing both principal and income, WILL NOT disqualify my friend from SSI?

The SSI rules specifically state any portion of the trust from which a payment can be made is considered a resource. It is very clear and straightforward.
And since the trustee can make a distribution at any time from both the principal (which exceeds resource limits) or income, it means that just by the very existence of this trust, he is disqualified.

What am I missing here?

As for a third party SNT, I'd rather not do it for a few other reasons, unless I absolutely have to.

 

[Taxing Matters]

Are the attorneys I spoke to wrong in telling me that a non-grantor irrevocable trust, provided the trustee has full unrestricted power in regards to distributing both principal and income, WILL NOT disqualify my friend from SSI?

No one here can answer that because we don't know the exact details of the information given those attorneys and exactly what they told you. The trust has to be carefully constructed to ensure that the disabled beneficiary doesn't have any access to or power over the trust assets, that the trust assets won't include any assets of the beneficiary, and that ensures the trust won't pay for things that would end up disqualifying him for benefits. That's what the third party SNT is designed to do.

Ask one of the lawyers who told you that the particular trust he/she has in mind exactly what that trust would look like — what powers the trustee would have, what the beneficiary is entitled to get, etc. — and how that meets the requirements set out in the Social Security Act, regulations, and case law for trusts that benefit beneficiaries on SSI and Medicaid.

 

[LdiJ]

My question in the original post is still not answered.

Are the attorneys I spoke to wrong in telling me that a non-grantor irrevocable trust, provided the trustee has full unrestricted power in regards to distributing both principal and income, WILL NOT disqualify my friend from SSI?

The SSI rules specifically state any portion of the trust from which a payment can be made is considered a resource. It is very clear and straightforward.
And since the trustee can make a distribution at any time from both the principal (which exceeds resource limits) or income, it means that just by the very existence of this trust, he is disqualified.

What am I missing here?

As for a third party SNT, I'd rather not do it for a few other reasons, unless I absolutely have to.

Again, then you are going to want to consult an attorney in NY. However, I don't see any way you can do it other than with a third party SNT.

 

[GoodTrustho]

You keep talking about it being a special needs trust. I said it won't be.

It will be an irrevocable non-grantor trust where the trustee will have full discretion to distribute all principal and income as he sees fit. There will be 3 beneficiaries, one of which receives SSI.

The attorneys specifically stated that under these conditions the only way my friend will lose Ssi payments if the distribution is made to him and said distribution exceeds his payment from SSI.

Yet the SSI rules specifically state that any portion of a trust from which a payment CAN be made is considered a resource. Thus it follows that the mere existence of this trust would disqualify my friend from SSI.

I said this to 2 of the 3 attorneys I spoke to and they said I was wrong.

But SSI rules specifically state it the way I stated above, which would mean they are wrong.

And again we were not talking about a special needs trust.

 

[t74]

The fact that there would be 3 beneficiaries of the trust is new info. They were mentioned as listed in the will but it is unclear to me that the others are also to receive distributions from the trust pre-death. The household income and resources affect SSI. I find it hard to believe a family of three could exist on SSI to one of them.

I hope the attorneys you consulted are estate law specialists with experience in issues involving the disabled and elderly. Your local senior and disabled services groups may have lists of qualified attorneys.

(TM, Once again you have provided extremely useful heretofore unknown information regarding the two types of SNTs.)

 

[LdiJ]

You keep talking about it being a special needs trust. I said it won't be.

It will be an irrevocable non-grantor trust where the trustee will have full discretion to distribute all principal and income as he sees fit. There will be 3 beneficiaries, one of which receives SSI.

The attorneys specifically stated that under these conditions the only way my friend will lose Ssi payments if the distribution is made to him and said distribution exceeds his payment from SSI.

Yet the SSI rules specifically state that any portion of a trust from which a payment CAN be made is considered a resource. Thus it follows that the mere existence of this trust would disqualify my friend from SSI.

I said this to 2 of the 3 attorneys I spoke to and they said I was wrong.

But SSI rules specifically state it the way I stated above, which would mean they are wrong.

And again we were not talking about a special needs trust.

I agree that you need to consult an attorney with whom you can be more candid about why you are so anti a special needs trust.

 

[Taxing Matters]

Yet the SSI rules specifically state that any portion of a trust from which a payment CAN be made is considered a resource. Thus it follows that the mere existence of this trust would disqualify my friend from SSI.

Do you have a link to this info that you keep mentioning? Again, the details of exactly what it says matters. If I could look at what you are reading it would help me see exactly what SSA is saying would disqualify the beneficiary from benefits. As I mentioned to you before, a lot of the SSA pages discuss first party trusts – trusts made up of the assets of the person who is to receive the benefits. The requirements for those are stricter than for the third party trusts. So are you certain you were looking at SSA info on third party trusts?

I said this to 2 of the 3 attorneys I spoke to and they said I was wrong.

And I'll say it again, the details of the trust do matter, and I don't know exactly what trust those attorneys had in mind and what exactly was said.

Why is a third party special needs trust so objectionable to you? What do you want to do that you think a third party SNT wouldn't allow you to do?

I've outlined for you the basic rules for trusts to benefit a disabled person receiving SSI and Medicaid, but since in part those rules are based in state law, you need to to sit down with an attorney in your friend's state to discuss what options you have for a trust to benefit him.