This issue of The Voice was written by Special Needs Alliance member Patricia A. Nelson-Reade, Esq., an attorney with Nelson-Reade Law Office, P.C. of Portland, Maine. Her practice focuses on special needs planning, elder law and estate planning and administration. Patricia is also a registered nurse. She has been selected by her peers for inclusion in the Best Lawyers in America, been recognized as a “super lawyer” by the New England Super Lawyers publication for her work in elder law, and was named in the Inaugural Edition of the U.S. News Best Lawyers, Best Law Firms, again in the area of elder law. Patricia has continuously received the highest rating in ethics and has been classified as a preeminent lawyer under the Martindale-Hubbell peer review. She often lectures to the public and professionals on special needs planning and special needs trusts.
Transportation is one of the basic needs of all persons, especially those with disabilities. Means-tested public benefit programs, such as the Supplemental Security Income and Medicaid programs, impose asset ceilings as a condition of qualification; however, these programs exclude a motor vehicle as a countable asset in recognition that a vehicle is often necessary to obtain basic necessities. A safe vehicle with adaptations for a disabled person can cost more than $70,000, and the routine maintenance of vehicles and adaptive equipment can also be costly. Trustees of special needs trusts are often asked to assist in the purchase of a vehicle for a disabled beneficiary, and may be presented with a request for a particular vehicle or adaptive equipment. Before approving this major purchase, which has significant safety implications, trustees and beneficiaries should consider several factors.
Financing the Purchase of a Vehicle
First, the trustee and family must consider whether the trust can afford the purchase of the vehicle. If the trust contains substantial liquid assets sufficient to meet the current and future needs of the beneficiary, then this factor will not be as significant. On the other hand, if the trust does not contain ample assets for current and future needs, the trustee must weigh the need for alternative types of transportation that may be available against other current and future needs of the beneficiary. Also, the trustee can determine if there is any public source of funding such as a Veterans Administration (VA) program or a state department of vocational rehabilitation. The structure of the purchase, such as a lease, direct purchase, or loan, must be evaluated in light of the particular situation. A lease may be an appropriate financing tool for trusts that contain annuities or have non-liquid investments. The lease or purchase of an accessible vehicle or the costs of a van conversion may offer a medical income tax deduction that could be helpful to offset income from investments. A plan for routine maintenance and the costs associated with vehicle maintenance should be considered at the time of purchase. There are companies that specialize in handicap-modified vehicles and can offer information and recommendations on the options for purchasing or leasing a modified vehicle.
The second factor relates to safety concerns. The goal is to purchase or lease an appropriate and safe vehicle. This cannot be done without an assessment of the beneficiary’s and driver’s needs. Who will be operating the vehicle? Does the potential driver have a history of seizures or other neurological conditions? Does the operator have a valid driver’s license? Has the driver had an assessment to identify driver-specific recommendations for adaptive equipment? If the beneficiary is wheelchair dependent, has there been an assessment to determine what adaptive equipment is recommended? What are the advantages and disadvantages of different wheelchair lift systems?
Assessments of driver safety and appropriate vehicle adaptations are sometimes necessary before the trustee can approve of the disbursement for an appropriate and safe vehicle. While the trust beneficiary, his family or caretaker typically notify the trustee of the need for a vehicle and often have a particular vehicle in mind, the trustee must exercise its independent judgment regarding the appropriateness of the proposed vehicle and adaptations to it. What is a safe and appropriate vehicle for one person may not be for another. Trustees cannot be expected to be accessible vehicle safety experts, but trustees can consult with such experts to make informed decisions regarding safe and appropriate vehicle options to meet the particular needs of the beneficiary.
Should the Trust or the Beneficiary Own the Vehicle?
The trustee must also wrestle with how to title the vehicle in the best interests of the beneficiary and consistent with the trustee’s duty to administer trust assets prudently. The trust, the beneficiary, or the beneficiary’s legal representative may own the vehicle, and the appropriate owner depends up the circumstances. The primary advantage of having the trust own the vehicle is that the trustee then controls what happens with the vehicle. The beneficiary may be unstable or vulnerable to financial exploitation, and ownership by the trust can prevent an inappropriate transfer of the vehicle. The beneficiary may be a minor or suffering from mental incapacity and cannot personally own the vehicle. If the beneficiary already owns a vehicle, transferring it to the trust may be helpful for public benefits planning.
If the trust owns the vehicle, however, the trust may be exposed to liability for an asset the trustee does not manage or have control of on a day-to-day basis. Professional trustees who manage investments may not feel comfortable with trust ownership of a vehicle which poses risks that they cannot control. Sufficient liability insurance can help alleviate this issue. The trustee should review the coverage limits and consider increasing the maximum coverage or adding an umbrella policy. Confirmation that the insurance covers the adaptive equipment is important as some policies have exclusions for unapproved motor vehicle adaptations.
If the trust owns the vehicle it may be hard for the driver to obtain insurance coverage since the trustee in many cases will not be the driver of the vehicle. Many states distinguish between the legal owner of a vehicle and the registered owner. If that is an option, the trust can be listed as the legal owner of the vehicle but the driver will be listed as the registered owner. As the legal owner of the vehicle, the trustee can control whether the vehicle is sold or given away, but insurance will be issued to the registered owner who will be driving the vehicle.
Putting the vehicle ownership in the name of the trust beneficiary may be a better alternative if the trustee determines the beneficiary can safely operate and manage the vehicle, the beneficiary is competent and not at significant risk of financial exploitation, and the vehicle does not adversely impact the beneficiary’s public benefits. In the right circumstances, outright distribution of the vehicle can provide a sense of autonomy and independence for the beneficiary.
The issue of how to title a vehicle is more complicated for beneficiaries who are minors or have disabilities that affect driving skills. While having a family member driver own the vehicle may appear to be an obvious solution, this is generally not an option. The distribution of a vehicle to a family member driver may be considered a breach of the trustee’s duty to provide for the beneficiary as the trustee has no control over the distributed vehicle and the family member has no legal duty to hold the vehicle for the benefit of the disabled beneficiary.
Even in the best of situations, distributing the vehicle to the parent driver exposes the asset to the risk of known and unknown creditors of the parent. If the special needs trust is funded with the beneficiary’s own assets, distributing the vehicle to someone other than the beneficiary or his legal representative could jeopardize the beneficiary’s eligibility for needs-based programs because of the requirement that the trust be for the sole benefit of the disabled beneficiary. The benefit programs could view the transfer of a trust asset to the parents as a gift that will result in a period of ineligibility for the cash or medical benefits. In some states, and typically with prior court approval, it may be possible for the trust to purchase the vehicle and then transfer ownership to the parent driver with a registered lien for the full purchase price of the vehicle. Although the parent driver owns the vehicle, it has no sale value to the parent because the trust has a lien for the vehicle’s full value. This lien protects the value of the vehicle for the sole benefit of the beneficiary, consistent with the terms of the trust and the requirements of the SSI and Medicaid programs.
Another alternative to trust ownership of the vehicle is having the beneficiary’s legal representative own the vehicle on the beneficiary’s behalf. For minors, most states have statutes, called Uniform Transfers to Minor Act (UTMA) or Uniform Gifts to Minor Act (UGMA), that permit a person, called a custodian, to hold assets for a minor up to 21 years of age (18 years of age in some states). Custodial ownership may be helpful for a young beneficiary if the trustee determines the custodian, such as a parent, is an appropriate driver and manager of the vehicle. For Supplemental Security Income purposes, an asset in a UTMA or UGMA account is not considered owned by the beneficiary until the UTMA or UGMA account terminates at the upper age limit under the state’s UGMA or UTMA law. For mentally incapacitated beneficiaries, the court appointed guardian or conservator may hold title to the vehicle provided this does not impact the beneficiary’s public benefits.
The trustee of a special needs trust should consider the above issues before buying or leasing a vehicle for a beneficiary with disabilities. The primary purpose of special needs trusts is to enhance the life of the beneficiary without unnecessarily impacting relevant public benefits. Purchasing a vehicle falls squarely within this primary purpose. A deliberate analysis to determine the appropriate financial structure for the purchase or lease by the trust, the appropriate vehicle and adaptive equipment to meet the needs of the beneficiary, and the appropriate titling of the vehicle is a strong foundation for making sure the purchase of a vehicle meets the unique needs and circumstances of the trust beneficiary.