Before addressing this topic, it is important to note that books have been dedicated to this sole topic, and those publications are still not entirely comprehensive.  The purpose of this blog is to simply provide a general overview of what it means to be a Trustee of a Special Needs Trust (SNT).  It is important to note that no rule is absolute when making decisions regarding the administration of an SNT.  Every decision a Trustee makes is based on a multitude of variables such as: prudent investment rules, state Medicaid rules, Social Security Administration’s (SSA) Procedure Operating Manual System (POMS), labor laws, case law, probate codes, etc.
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Overview

What is Deeming and Why Does it Exist?
The most common form of deeming is referred to as Parental deeming.  This is when a parent’s income and/or assets are counted towards the child’s resources when applying or receiving Supplemental Security Income (SSI). This occurs when the child is under the age of 18 and is living in the same household as his/her parents.  Parental deeming still applies if the child is attending school away from the household temporarily and comes home on the weekends, for holidays, school vacations, and/or is still subject to parental control (SI 01320.500).  Additionally, an adopted parent and step-parent’s income if living in the same household still counts towards a child’s eligibility for SSI.  It’s important to note however, that if a child is receiving SSI his/her income and resources do not deem to the parent even though a parent’s income and resources deem to their child (SI 01320.100). 
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According to the Social Security Administrations (SSA) policies as defined by the Program Operating Manual System (POMS), it can be inferred that Parental Deeming exists because it is the responsibility of a parent to care for their child.  However, the SSA recognizes the complexity of these situations, and in a later section we will discuss when parental deeming does not apply.
Another form of deeming is Sponsor-to-Alien deeming (SI 00502.200).  This occurs when an individual sponsors an alien who is entering the United States.  Unlike parental deeming, this form of deeming applies regardless of whether the Alien lives with their sponsor.  However, the rules regarding deemed income and assets are similar to parental deeming, as further described below.  To understand when an alien is eligible for SSI please refer to the POMS labeled SI 00502.200 and the corresponding POMS based on when the Alien applied for immigrate visas or adjustment of status (SI 00502.100, SI 00502.215).

What Income and Assets Deem to the Child or Alien?

The Deficit Reduction Act of 2005, also known as DRA, is a Federal law that grants states the ability to modify their Medicaid programs. This allows individual states to reform their Medicaid programs to fit with the present health care environment while maintaining federal guidelines. In short, it is a Federal law that is implemented in each state differently.

What were the Significant Provisions of the DRA? 
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​If you are an Applicant Attorney or an individual that works extensively with individuals who will be receiving a Workers’ Compensation claim, you are most likely aware of the Hartman Formula. For those who are not familiar with the Hartman Formula, this blog will describe the Hartman Formula and its purpose.
 
According to the Social Security Administration, “the Hartman Formula is a common name for California WC LS settlements that specify life expectancy (LE) rate. Attorneys often characterize settlements using this LE based proration method.” 

CPT Institute’s primary mission is to provide “education and resources to the professional community serving the most vulnerable individuals in our society”.  Thus Far, this series has provided education and resources on each of the three trust products offered nationally: First-Party Special Needs Trust (SNT), Third-Party SNT, and the Settlement Management Trust (SMT).  This chapter will address Minor’s Trusts which is not currently offered in all states. Please consult with a CPT Trust Officer by calling 855.278.7681 to see if this is a product that is available in your state.  

CPT Institute’s Minor’s Trust is intended for someone under the age of eighteen and can continue into adulthood.  A Minor’s Trust does not protect SSI and/or Medicaid eligibility, but like the SMT has “springing powers” to become an SNT if the Beneficiary becomes eligible for needs-based benefits like SSI or Medicaid in the future.  When any Trust with CPT is established, CPT acts as Trustee to ensure the funds are disbursed in a manner that is consistent with the best interests of the minor.  This includes protecting funds from unauthorized parties or irresponsible purchases.  This is commonly referred to as having to uphold a fiduciary duty.  Like all CPT’s Trust Products, Minor’s Trusts are also structure friendly.  Structures are even encouraged because it adds an additional layer of protection by limiting how fast the funds can be spent on the minor while providing tax-free income (if proceeds from a personal injury settlement).  

Our primary purpose at CPT Institute is to provide education and resources to the professional community serving the most vulnerable individuals of our society.  This series is meant to provide with education and resources on Settlement Management Trusts (SMT). 

All CPT’s trust products are designed to protect those living with severe disabilities or those vulnerable to financial abuse, our SMT is no exception. To qualify for an SMT, a beneficiary or his/her legal representation must speak to a CPT Trust Officer to ensure he/she satisfies the requirement of being “disabled and/or vulnerable”.  CPT’s SMT is intended for those who are vulnerable of his/her funds being spent on others, miss managed or spent on items not outlined in a custom joinder.  These trust accounts allow for a custom “Joinder” which allows for very specific rules for how the funds can be spent and how much of the principle can be utilized over time.  A Trustee of an SMT is used to help screen his/her purchases to ensure the purchases make fiduciary sense.

This week of our series Types of Trusts and When to Use Them, we will be addressing Third-Party Special Needs Trusts (SNT). Please be sure to subscribe to our blog on our website to be notified when Chapter 3 is published on Settlement Management Trusts (SMT).  If you missed Chapter 1 on First-Party SNTs please view our Blogs section of our website at cptinstitute.org/blog.
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Before we begin, below is a review of some of the vocabulary used in this field previously mentioned in Chapter 1.  The following definitions have been modified from Administering the California Special Needs Trust: A Guide for Trustees and Those Who Advise Them, written by Kevin Urbatsch and Michele Fuller.  

There are many different types of trusts and each of them serve a different purpose. This blog series, Types of Trusts and When to Use Them, is going to address a new type of Master/Pooled trust program offered by our charity as a tax exempt non-profit trustee. See our bimonthly blog which will be published on our website and LinkedIn. Please be sure to add one of the authors on LinkedIn to stay current on CPT’s Blog Posts. Master trusts/Pooled Trusts have one Trust instrument with many trust beneficiaries/people with their own trust account. It is important to note that the descriptions provided are generalities and an individual should consult a Special Needs Planning attorney for legal advice to discuss his/her individual circumstances before establishing a trust. However, an individual does not need an attorney to establish a Special Needs Trust (SNT) (SI 01120.203, SI 01120.202).
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Before we begin, we need to discuss some basic vocabulary used in this realm.  The following definitions have been modified from Administering the California Special Needs Trust: A Guide for Trustees and Those Who Advise Them, written by Kevin Urbatsch and Michele Fuller.  

​When beneficiaries file taxes they may receive a federal tax refund and even a state refund. According to the federal law, if a beneficiary receives Supplemental Security Income (SSI) and/or Medicaid and receives a federal tax refund, the refund is not counted as income for purposes of his/her benefits as long as it is in his/her name and with his/her associated Social Security Number (SSN). 

A Special Needs Trust (SNT) can pay past debt incurred by beneficiaries. This includes credit card debt or cash loans. This text will address the rules and limitations associated with paying past debt properly. It is important to remember that for a Special Needs Trust to pay a loan, it must be bona fide loan.
 
To be certain a trust can pay for such items the Trust Document must be reviewed, as it governs the proper administration of the Special Needs Trust Account. The Trust Document can have specific limitations on paying for certain items/services, or limitations on how much past debt can be paid. For example, some Special Needs Trusts are drafted to prohibit the purchase of cigarettes, which would then prohibit the Trustee for paying any past debt that went towards paying for cigarettes.
 
What is a Bona Fide Loan Agreement and a Bona Fide Informal Loan?
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