This installment of the Voice was written by Special Needs Alliance member Evan J. Krame who focuses his practice on estate planning, probate, special needs planning and elder law. Evan is a past president of Shared Horizons, operating a pooled trust serving the Mid-Atlantic region. Evan also served as co-chair of the Estates, Trusts and Probate Section of the DC Bar. He has been honored as a Top Attorney and Best Lawyer in Washington and Maryland. Evan is a candidate for rabbinic ordination, seeking to blend his work in the law with pastoral care and spiritual direction skills. You may visit his website at Law Offices of Evan J. Krame.

January 2014 - Vol. 8, Issue 1

One of the most challenging responsibilities of a trustee of a special needs trust is balancing the benefits of purchasing a handicap-modified house for a beneficiary with the financial pressures of a steadily decreasing trust balance and steadily increasing household expenses.

I am the trustee of a special needs trust established for an adult woman named Sasha. Although Sasha faces special challenges due to certain disabilities, she has achieved a level of independence as an adult. Sasha attends a daily work program and assists her family with household chores. Her residence has been modified to accommodate her needs, with an elevator to her bedroom and an open floor plan. Sasha’s biggest challenge is transferring from her wheelchair to a toilet. Accordingly, she needs help from an aide several hours each day when she is home alone without her mother’s assistance, which, of course, is a cash drain on the trust.

The special needs trust I manage for Sasha owns the residence in which she and her mother live. The trust is funded with assets from litigation that settled eight years ago. Because the trust has distributed assets over time for Sasha’s benefit and special needs, trust funds are virtually depleted, with little left to pay for Sasha’s ongoing care. Unfortunately, there are no other assets available to help the family, as Sasha’s father recently passed away and her mother’s income alone is not enough to carry the costs of the home and the daily help from the aide.

As trustee of Sasha’s trust, I am helping the family figure out their options. We have discussed downsizing, which would involve my selling the residence and purchasing a smaller, handicap-modified home. As trustee, I know this plan may be very difficult if not impossible to achieve, due to the scarcity of accessible homes on the market. In addition, for this option to work, any new home’s purchase price would need to be significantly lower than the sales price of the current residence. Even if we were to exchange the current residence for a less expensive home for Sasha, the family still would be faced with the challenge of having too little income to cover Sasha’s current needs. Accordingly, since the trust assets will continue to decline, I have concluded that the only solution to the family’s concerns is to sell the current residence and rent a handicap-modified home or apartment, if available. However, the family is somewhat resistant to this idea.

I serve as trustee of 60 special needs trusts. Most of them own a home in which the trust beneficiary resides. Five of those trusts have liquid assets of less than $100,000 and steadily declining cash balances. In our office, we refer to these trusts as the “crisis trusts,” and Sasha’s trust falls into this category. Although Sasha’s mother is amenable to exploring the idea of moving and downsizing, the other families of these crisis trusts are not as flexible despite the fact that each of these houses requires repairs and no funds are available to pay the contractors.

Trustees must weigh various factors, as well as short- and long-term goals, when faced with circumstances involving trusts and families that have insufficient funds to meet a beneficiary’s needs or maintain a residence. First, the trustee should know what income is available to the beneficiary and the family to meet expenses. This will involve determining whether the trust beneficiary is receiving Supplemental Security Income (SSI), a federal cash benefit. If so, the beneficiary has some income but any payment made by the trust for costs that are considered “shelter” to the beneficiary, like the payment of gas and electricity bills, must be reported to the Social Security Administration and will reduce the beneficiary’s monthly SSI benefit by up to a maximum of one-third of the Federal Benefit Rate (FBR). (The FBR is $721 in 2014.) Second, the trustee and family must determine who is able to pay the other carrying costs for any residence owned by the trust, above and beyond the monthly utilities. This may occur, for example, through the payment of rent by any other family members residing in the home owned by the trust. Third, the trustee must identify any additional costs incurred in meeting the beneficiary’s needs, other than maintaining a residence, including costs of transportation, caretaker services or equipment purchases.

After estimating the expenses for the residence and the beneficiary’s needs, as well as identifying the available income and assets to meet these expenses, a trustee of a crisis trust with declining balances often is faced with impossible choices. For instance, do we repair an automobile or repair a broken window? Do we pay the heating bill when the family is unable to do so and thereby reduce the beneficiary’s SSI income that would have been available to purchase food for the month? If we pay for internet and cable, do we have funds left to purchase winter clothes? Because the stakes are so high when planning for a person with special needs, a dedicated trustee often agonizes over these tough administration decisions. However, the anguish a trustee may feel often pales in comparison to the dire consequences to the beneficiary and the family if a wrong decision is made. We simply cannot ignore the extreme pressure imposed on a trustee whose every decision may determine how long a special needs trust will last to serve the beneficiary’s needs.

Given the various expenses associated with owning a residence and the often high costs resulting from meeting the needs of a person with disabilities, I am beginning to rethink the wisdom of investing special needs trust assets in the purchase and maintenance of a residence for the beneficiary and/or family. If there are suitable rental units available for an individual with special needs, I would encourage many beneficiaries to rent handicap-modified homes or apartments. Without sufficient housing options in the rental market, however, we repeatedly are persuaded to purchase a home and make modifications to suit the beneficiary’s needs. The downside of a trustee diving into a real estate investment is the often inevitable financial crisis of depleting the trust’s cash to carry the residence over time and being forced to sell the home in favor of a less accessible rental arrangement. The distress for both the trustee and the beneficiary is palpable when faced with a trust having a steadily declining balance and, unfortunately, choices that ultimately satisfy everyone involved simply may not exist.