Ep. 109 – Chess Griffin – Special Needs Trust – What You Need to Know

Do you have plans to set up a special needs trust for your child or a loved one? 

A special needs trust is a special type of trust set up to still take care of a person with healthcare needs without disqualifying them from other benefits. This trust which is sometimes referred to as a supplemental needs trust is set up by a third party to supplement for other governmental benefits. 

In this episode of the Secure Your Retirement podcast, we have Chess Griffin to talk about a special needs trust and what you need to know before setting one up. Chess Griffin is a well-known estate planning attorney who is very knowledgeable about trusts. 

In this episode, find out:

  • Understanding the meaning and purpose of a special/ supplemental needs trust. 
  • The special needs trust is set up to give the trustee the broad power to distribute as needed. 
  • Why special needs language can be added into a trust to help implement it in the future. 
  • How the special needs trust covers the bases whether a child has special needs or not. 
  • How to choose a trustee for your special needs child for when you’re gone.
  • Why you should avoid funding a special needs trust with retirement accounts.
  • How to handle the investment side of a special needs trust as a trustee. 
  • Why it is important to thoroughly think about who the trustee is going to be. 
  • Why it’s complicated to set up a first-party trust.  

Tweetable Quotes:

  • “Whether it’s a special needs trust or your regular old revocable trust, a trustee has a fiduciary duty to manage the trust assets in a prudent way.”– Chess Griffin
  • “The special needs trust is set up to give the trustee broad power to distribute as needed.”– Chess Griffin

Get in Touch with Chess:

Website: http://www.chessgriffin.com


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Here’s the full transcript:

Radon Stancil:There are many different types of trust but what is a special needs trust? Should you have one? How does it work? Well, by the end of this video, you’re going to gain clarity not only for your personal retirement plan but you’re going to also have action items to secure your retirement.  
Murs Tariq:To learn more about securing your retirement and all the different elements you need to know, subscribe to our channel and hit the bell to be notified when we post a video every Monday. We have helped hundreds of our clients gain clarity and get on the path to a comfortable and happy retirement. Now it’s your turn. Let’s dive in.  
Radon Stancil:Welcome everyone to our Monday podcast. Each and every Monday, Mers and I, our goal is to make sure we handle questions but we do this with the help of an expert, somebody that we can bring on to help us answer the questions. And this is a repeat expert. He’s such an expert, we bring him back multiple times, Chess Griffin, who is an estate planning attorney. And so let me just say this right up front, Chess. We certainly do appreciate you buying out time out of your schedule to come on here and answer our questions and help our listeners.  
Chess Griffin:Well, sure. Radon, it’s always great to be here and Mers, great to see you. I always enjoy these conversations. Look forward to getting into this topic.  
Radon Stancil:Good. What we’re talking about today is this idea of what we call a special needs trust. Now we’re going to kind of go down this path. We’re probably not going to go into every detail that could possibly be out there for a special needs trust, but we’ll at least hit enough that maybe if a person has a question about it themselves, they might know, okay, this is where I can go to get answers or this is what something I might need to think about. I know that in the past, I’ve gone to Chess and talked about some situations with my clients and said, “Hey, how do we deal with this? And this is kind of the topic that we at least got to go down the path of exploring.” Can you first of all, Chess, just explain to us why we use this term special needs and what that applies to.  
Chess Griffin:Sure. Yeah. Yeah. A special needs trust, sometimes it’s called a supplemental needs trust also sort of a synonym, I guess. But generally these are when people have a family member who might be eligible either currently or perhaps in the future for some kind of Medicaid or Social Security disability, some kind of assistance program like that, where someone can apply for financial assistance for healthcare needs, generally speaking. And so a special needs trust is a special kind of trust that is set up to still take care of that person but we don’t want to disqualify them from all those benefits like Medicaid or Social Security disability. I usually see it with my clients who may have a child who is disabled or has some other kind of special needs and they want to take care of them, but they still want to leave the door open for those kinds of Medicaid and Social Security disability.  
Murs Tariq:Got you. And that seems to be what comes across our table as well. And that’s the whole reason for bringing you on again. I know you’ve been on our podcast quite a few times to talk about wills and power of attorneys and all of these little documents that you need to have in place. But if someone has that situation where they’re trying to make sure that a loved one, a child or a family member is taken care of, that’s where the special needs trust comes into play. And so how does it work? How does a special needs trust work? Obviously there’s documentation. You sit down with the attorney and I guess you first decide, hey, maybe a special needs trust could help you but how do they actually work?  
Chess Griffin:Yeah. Yeah, that’s a great question. What’s interesting, I guess, is that a lot of times so let’s think about the sort of standard situation where maybe you have a client with adult children who are all mature and doing fine. A lot of times, if we set up a trust, we might give those adult children the right to withdraw their share at a certain point in time, maybe when they reach 30 or something along those lines. Well, the problem when you have someone who is special needs, who might be eligible for those kinds of things we talked about like Medicaid, we don’t want those people to be able to reach the trust. We don’t want to give them the right to withdraw because those kinds of programs they often look at or they generally look at the applicant, meaning the special needs individual who’s applying for Medicaid, let’s say.  
Chess Griffin:They look at that person’s income and assets and these rules vary all over the country so I’m just going to kind of speak in general terms. But generally speaking, if that person’s a beneficiary of a trust and they have the right to take it out, they have a right to withdraw, then that trust could be considered an available resource to them. In which case they might be disqualified from those programs. The way it works is typically the trust is drafted to not provide that person with the right to withdraw but instead give the trustee sort of broad discretion to distribute for that person’s supplemental needs. That’s why we call it sometimes a supplemental needs trust. It’s intended to supplement what Medicaid, let’s say doesn’t pay for. But you can’t have it both ways, you can’t have your cake and eat it too. The beneficiary really can’t have any rights to it in terms of the right to take it out. That’s typically the way it’s done is to set it up to give the trustee broad powers to distribute as needed.  
Radon Stancil:When I think about that, I know you mentioned about adult children and when thinking about applying potentially for these other benefits that a person could get if they are special needs. But now I’m assuming here and I’m just going to ask a question that might have two answers to it but let’s say that I have a younger child and maybe they’re not an adult yet but they are special needs. And I know that and kind of like for me, I have minor children. I want to make sure that I’ve got things set up for them so that if something happened to me, let’s say an accident or something happened and took me out early, I’ve got things set up for them. Are special needs trusts, are they needed prior to them becoming an adult? Is that a scenario that we might need to think about?  
Chess Griffin:Well, they can be. Certainly we can implement them in the future once they are an adult, but to your point, Radon, a lot of times what I’ll do, even in trusts for my clients who have minor children who maybe are not yet special needs, we will add special needs language sometimes to the trust just in case they become special needs down the road. They may be perfectly healthy now but what if the child is in an accident and becomes disabled or something down the road? You can really implement it at any time, whether they are young or an adult or whether they are currently in that situation or we just want to cover the what ifs. Really, there’s a lot of different variety there.  
Radon Stancil:Am I correct in thinking then that if we use the term special needs that am I only really calling it a special needs trust if I’m dealing with somebody who is receiving some kind of government benefit that I need to make sure that the money is regulated correctly?  
Chess Griffin:I think that’s sort of generally the way people view these trusts and the way they’re often implemented but that doesn’t have to be the case. And in fact, I’ve done some special needs trusts where the person, the child let’s say, may not even really ever apply for Medicaid or Social Security disability. Maybe their situation’s not quite at that level and the parents, they’re not sure that they ever will apply for those kinds of governmental benefits but they want to set it up just in case. In case their child, the condition progresses or something along those lines, they want to make sure the bases are covered because the flip side is because the trustee can always distribute as needed, let’s say the child never really develops, it’s not severe, let’s say. Let’s say the child is able to live independently someday and they’re never really going to qualify for Medicaid or Social Security disability. Well, the trustee can then just go ahead and give them the money, assuming the trustee wants to. It really does kind of cover the bases both ways.  
Murs Tariq:Yeah. And so that brings me to a question of, because in a previous podcast, we’ve talked about just your simple trust in all essence, a revocable living trust where a lot of times the grantor or the person who puts the money in is also the trustee. And so in this scenario, that’s not the case. Or maybe let’s talk about how important it is when it comes to deciding a trustee for this type of trust.  
Chess Griffin:Right. Yeah. And the trustee question is always a difficult question, even in the regular revocable trust that you mentioned Mers because really this is only going to be, not only, but oftentimes this is really going to be relied on, if the parents died, like Radon was just talking about it, he wants to set things up for his kids. The parents are gone and now you have a third party stepping in as trustee. And so they’re going to need guidance on what to do.  
Chess Griffin:I have one client that I’m thinking of right now who has an adult child, a son, the adult child’s in his sixties and he is a special needs individual and he lives in a group home but the client, his mother, she was the one I did the special needs trust for, she drafted on her own a very long letter to the future trustee describing her son and the kinds of things he likes to do and the church he goes to and the transportation service she uses and things to try to keep a sort of a constant in his life, if something were to happen to her so things aren’t just completely upended.  
Chess Griffin:It’s almost like thinking of this trustee is like, when you’re thinking of a guardian for your minor children. It’s similar to that because you want to have someone who’s going to be empathetic to the individual, the special needs individual and who’s going to be willing to take the time to read these instructions and hopefully follow your guidelines. She even put in this letter the kinds of movies he likes, he likes to go to the movies. And so, she wants the trustee to be able to coordinate trips and take him to the movies or to have someone take him to the movies from time to time. And she really wanted to make sure the trustee knew about that. Those kinds of details for this kind of trustee I think are really critical.  
Radon Stancil:Yeah. I know that in my situation and I think many situations, especially if you’re doing this, I don’t know, and you’ve got younger children and you’re planning for something in the future, but I guess anyone, when it comes to funding, obviously I know you could just take an account and fund this trust with money but can you fund these with life insurance as well? When I say fund them, can you have life insurance that will fund it if you die?  
Chess Griffin:Yeah, definitely. Definitely life insurance is a great asset for it. The one asset that I would stay away from our retirement accounts for special needs trust because of the required minimum distributions, even with the SECURE Act and the 10 years and all of that. There’s ways to maybe draft it, you can do something called an accumulation trust. But that might be very complicated. Because of those rules, I tend to recommend staying away from the retirement accounts for special needs trusts and using something like life insurance or other assets like that.  
Murs Tariq:Kind of going back to the trustee a little bit, when that trustee finds out that this trust has really come into fruition and they are now the trustee, I guess some of the things that they could be thinking about is, well, a lot of times trust are invested in the market or in some type of rate of return and so how do I go about managing this money? I guess my question is, is the trustee in all essence responsible for the investment side of it? Or is it really just their job to pick someone to help them out with the investment side of it? That’s my first question, so you can answer that and then I’ve got a followup.  
Chess Griffin:Yeah, well actually that’s the role of any trustee. Whether it’s a special needs trust or just your regular old revocable trust, a trustee has a fiduciary duty to manage the trust assets in a prudent way. And so that would certainly involve making sure the assets are being invested wisely. And when I meet with trustees, I usually recommend that they seek out professionals like yourselves to do that for them and not try to be a Jack of all trades. And any one of us, if we were put into that kind of fiduciary role, I think we would want to make sure we hire good investment managers, a good accountant to do the tax returns, good people to fill out the team. And so, that is a big part of being a trustee.  
Murs Tariq:Right. And then, so my next question comes back to the power of the trustee and their ability to withdraw funds as needed or the special needs person. I guess where are the checks and balances on this? Because essentially the trustee has all the power. And my guess is that the special needs would not be able to know whether or not there’s abuse of power here. Where does the checks and balances come into play this way?  
Chess Griffin:Right. Yeah, that is a really excellent question. And you’re right. It’s going to be tough. Technically speaking, in many states there’s a state agency who kind of has control over individuals who may be in this kind of situation, an adult protective services type of agency. And I think sometimes those kinds of agencies, in theory at least, could take steps to protect an individual’s assets and their legal rights and their legal interests, especially if they are the guardian. Otherwise, there may be another person who’s appointed guardian over that individual, even over an adult, there are adult guardianship proceedings. It would either be the guardian who would have that right or that state agency I would think. But the reality is, there’s not going to be a lot of people looking over the trustee’s shoulder. And so when my clients are putting these together, it’s really important to think about who that trustee is going to be.  
Radon Stancil:I don’t know how rare or common or whatever this might be, but I guess if a person found out that they themselves have a condition that will get worse and worse and worse over time, I know we’ve been talking about this idea of setting a trust up for the child or for the other people but if a person knows, hey, I’ve got a condition that’s going to potentially put me in a position of a longterm, I’m talking longterm care scenario, not your normal older age one, can I do this for myself? Is that possible?  
Chess Griffin:Yeah. Yeah. Another great question. And that’s really, yes. And yes, it could be done but it’s very complicated. Yes, as you said, Radon, we’ve been talking about setting up trust for someone else, we call that a third party trust. The clients are setting it up for a third party. In other words, the child but it’s being funded with the client’s assets, not the child’s assets. Those are fairly straightforward, like we’ve been talking about but when someone wants to set it up for themselves with their own assets, that’s a first party trust. And then you’re entering into the dark and murky and complicated world of Medicaid eligibility and transfer rules and things like that.  
Chess Griffin:Medicaid to use that as one example, there’s lots of other programs but that’s what you hear about the most, Medicaid looks at, like I said, an applicant’s assets and income. They also look at transfers that have been made because the thinking is, the Medicaid rules are set up so we don’t want someone to have a million bucks on Monday, give it away on Tuesday and then on Wednesday, go in apply for Medicaid and say, “I got nothing.” The Medicaid, they look back typically five years for transfers that have been made. If you’re setting up trusts and funding it with your assets, that could run afoul of those Medicaid transfer rules. The long and short of it is it could be done but it’s a lot more complicated and it would require really talking to an expert on that kind of Medicaid eligibility.  
Murs Tariq:Yeah. Yeah. It seems like there’s quite a bit to it even just wanting to know whether or not this may be something that a person should go down the route of trust in general or adding in a special needs provision. Chess, thank you again for all your time today and for your expertise. But if you could, for our listeners, could you just kind of share what your process is when you’re helping? I know you’ve helped out several of our clients over the years, kind of think through these scenarios, can you just share with our listeners here, how you do that and then maybe how they could reach out to you?  
Chess Griffin:Yeah, sure. First in terms of reaching out to us, our office number is (919) 848-0420 and our website is kirschlaw.com. And when someone reaches out to us, usually they get in touch with my paralegal and she sends out, we have a little questionnaire. It’s not complicated. We don’t overdo it. We used to but I think we simplified it. We have a little questionnaire we send people and once they send that back, then I meet with folks and we just have a discussion, a consultation. There’s no charge. I sit around and talk with folks for a good solid hour or so and just kind of kick around ideas and thoughts and concerns and talk about sort of the process. And then if people decide to engage us, then we kind of go from there.  
Chess Griffin:But we try to make it a very painless process and a very down to earth process. And it’s a process of us helping people kind of put the right pieces in place, including the special needs trust when they’re appropriate. And we have a lot of clients who do these kinds of trusts and they would be very, very important to have if something were to happen to the clients and the child was to come into an inheritance, we really want to kind of protect those assets and protect that child as best we can. I appreciate the opportunity to talk about it.  
Radon Stancil:Yeah. And I’ll say this, I’ve been through this process with Jess a couple of different times, just because things have changed and we went through the whole process and I will say that it is very, very painless. It is not painful at all.  
Chess Griffin:Well that’s good to hear.  
Radon Stancil:It works nice and easy. And so we appreciate it. We appreciate you coming on and talking to us here.  
Chess Griffin:Certainly. Thank you.  
Radon Stancil:And we know that you’ve been a great help to all the clients that we’ve sent your way. Thank you so much.  
Chess Griffin:Well, thanks for having me again, guys. I really appreciate it.  
Radon Stancil:We hope this video has given you some confidence and clarity as you plan for a worry free life in retirement. But what else do you need? We have created a video course called 3 Keys to Secure Your Retirement. This video walks you through step by step what you need to do to get ready for retirement. You can also check out our podcast called Secure Your Retirement. You can subscribe below.  
Murs Tariq:For more retirement tips, watch this video, Create Your Retirement Income Plan. Also, click here to subscribe to our podcast, Secure Your Retirement. If you like this video, hit the like button and be sure to subscribe and share it with your friends.