by: Begley Law Group

by Thomas D. Begley, Jr., Esquire, CELA

businessman and woman are reading and signing contract

A counseling session should be held with all of the important players to identify immediate cash needs, develop a budget, design the plan of distribution, and begin the process of managing expectations. One of the most significant discussions will be how long the trust is expected to last. This begins the process of focusing the person with disabilities and his or her family on the need to control expenditures.

      The counseling session should include the plaintiff and involved family members and a Trusts and Estates Attorney.  The Personal Injury Attorney can be involved.  Eventually, the Trustee should be brought in, but usually not at the first meeting.

      The first thing to do at the counseling session is to identify immediate cash needs.  These might include a home, furniture, generator, vehicle, vacation, clothing and shoes, funeral, technology (such as computers or cell phones), or debt repayment.  Debt repayment often includes student loans, mortgages, home equity loans, credit card bills, car loans, and loans from family members.

NOTE:     Most states do not permit past debt to be paid from an Special Needs Trust (SNT). Arrangements must be made for these debts to be paid from the settlement prior to funding the SNT.

      Having the person with disabilities and/or family prepare a budget is an extremely useful tool. It begins the process of having the family focus on what expenditures are necessary and what level of expenditure can be sustained, if the trust is to last for the lifetime of the beneficiary, which is usually expressed in a given number of years. Giving the responsibility of preparing the budget to the person with disabilities and/or his or her family as opposed to having the trustee dictate the terms of the budget achieves buy-in from the person with disabilities and/or his family and makes for a much smoother administration of the trust. Very often, the person with disabilities will initially establish a very high level of expenditure. Once the person realizes that this cannot be sustained over his lifetime, he makes the adjustments and is willing to live with them.  Occasionally the opposite is true.  The trust beneficiary establishes a very modest budget and can be encouraged to raise his or her lifestyle.

      Items to be included in a budget generally fall into three categories:  shelter, transportation and personal.  If the trust is an SNT and the individual is receiving SSI, expenditures from the trust for food and/or shelter will reduce the SSI payment.  In New Jersey expenditures for food and shelter are considered in-kind support and maintenance (ISM) and are counted as income for purposes of determining whether the individual is eligible for Medicaid.  Medicaid has an income in New Jersey of $2,523 in 2022.  New Jersey Medicaid would consider ISM, Social Security, Pension and any other income in determining the income cap.  The purpose of SSI is food and shelter, so to the extent possible the trust should avoid making these payments.  Items that would be included in ISM and shelter expenses are rent, mortgage, real estate taxes, heat, electric, gas, water, sewer and homeowner’s insurance required by a lender.  Food at home and in restaurants are also included.  Shelter expenses that are not included as ISM are telephone, cable TV, Internet, repairs and maintenance, renter’s insurance, homeowner’s insurance not required by a lender, trash and/or garbage removal, condominium or co-op fees, equipment and furniture.  Transportation expenses include insurance, license, registration, fuel, and maintenance (including oil).  Personal expenses typically include household supplies, clothing, shoes, non-prescription drugs, cosmetics, toiletries, sundries, hair care, vacations, entertainment, newspapers, and magazines.  Some states, but not New Jersey, also permit pet care to be included.  Typically, Medicaid will cover prescription drugs, medical psychiatric and psychological counseling, dental and orthodontic expenses.  If they are not covered, they can be paid by the trust.

      Once the distributions have been agreed upon by all parties, it is important to determine who will pay for each expenditure. Many bills, such as utilities, can be sent to the person with disabilities who will initial the bill to indicate acceptance and then forward it to the trustee for payment. For other expenditures, such as small day-to-day expenses such as eating out, it might be more appropriate to have the beneficiary pay from his or her Social Security Income. Finally, there may be some expenditures that are best handled by a credit card. It is often possible to get the beneficiary, even on with bad credit, a credit card with a low limit. The card might have to be a secured credit card backed by a cash deposit with the card issuer. The beneficiary uses the credit card and forwards the bill to the trustee for payment. Of course, the credit card can only be used if the beneficiary is competent and not a minor. A third party, such as a parent, could obtain a credit card to charge goods and services for the benefit of the trust beneficiary and send the bill and receipts to the trustee for payment.