The Special Needs Trust in Divorce - Enhancing the Quality of Life For the Disabled Spouse Or Child

John and Mary are going through a divorce inthat such payments were paid directly to the providers
California. They have no children. Mary has not workedof goods and services for Mary's benefit, and not to
outside the home during their entire marriage of 10Mary, herself, the SNT could pay out ANY amount and
years. She now suffers from Parkinson's Disease andthere would be no reduction in Mary's SSI benefit
is unable to work. Their respective attorneys havepayment. For example, the SNT could purchase a
jointly determined that, based upon John's income andvehicle for Mary's use, and also pay for repairs, gas, oil,
Mary's need, John should pay approximately $1,500 /license fees, and related expenses.
month in spousal support for Mary. They also agreeWith respect to the second category (food or
that - if she were not receiving support from John --housing), SSI treats these expenditures differently.
Mary's disability and inability to work outside the homeSince SSI is designed to cover a beneficiary's food
would likely qualify for $845 /month in Supplementaland housing, payments made by the SNT to
Security Income ("SSI"). However, they further agreesupplement these items will partially reduce Mary's SSI
that the $1,500 per month that John has agreed to paybenefit, but not beyond a maximum amount each
in Spousal Support will not be enough for Mary to paymonth no matter how much is paid out. This category
all of her bills and living expenses. They do agree,of payments is called "In Kind Support and
however, that if Mary were somehow able to bothMaintenance" or "ISM" for short. These payments will
qualify for the SSI benefit of $845 per month and stillreduce Mary's SSI, but only partially: In 2010, the
get the benefit of the $1,500 per month in spousalmaximum reduction in Mary's SSI each month, no
support from John, that she will be able to do so. Ismatter how much is paid to her creditors for food and
there a way to accomplish this?housing that month, will be only $245 per month.This
Without any special planning, if John were to pay"cap" can be used to advantage: Example: If Mary
spousal to Mary directly, she would have no chance offinds an apartment that rents for $1,500 per month, the
qualifying for SSI: the attorneys have advised Mary,SNT could pay her full rent of $1,500 per month, but
correctly, that her receipt of support payments fromthe reduction in her SSI would not exceed $245 per
John in an amount greater than the potential SSImonth. In effect, she would get the benefit of a nice
benefit would eliminate any SSI eligibility, entirely. Butapartment renting at $1,500 per month for a "cost" to
what if there were a way to receive both supporther of only $245 per month.
from John AND the SSI benefit payment from theSeeing the potential benefit to Mary, all parties see the
government? Is it possible for the parties to structurewisdom of this approach. To implement this plan, their
their divorce in a way to permit Mary to do that?attorneys may recommend retaining the services of
Yes. Enter the Special Needs Trust ("SNT"). The SNTan attorney with special skill in creating Special Needs
is a special kind of trust designed to hold private fundsTrusts. That specialist would be engaged to prepare
and to disburse them to the public benefits recipient inthe SNT, furnish appropriate legal authorities to the
a manner that preserves, rather than destroys, hercourt to explain the workings of the SNT, provide
ongoing public benefit. It is a creature of both federalappropriate notice of its creation to the Social Security
and state public benefits law and enjoys theAdministration, and furnish guidance to the trustee in
"blessings"-- as it were -- of both. By merging the publicterms of the kinds of payments that could be made
benefit with private funds, the SNT is designed tofrom the trust and their impact, if any, upon Mary's SSI.
enhance the quality of life of the public benefitsOf course, the court would need to be convinced that
recipient, who would otherwise find it very difficult tothis is the right thing to do, as the court's participation in
live on the very modest public benefit payment, alone.creating the SNT would be crucial. To this end, the
If set up properly, John could make support paymentsspecialist might serve as a resource to the court in
directly into the SNT, and Mary could still qualify for SSI,explaining the benefits of a SNT to Mary. If set up
as well as linked medical coverage under the Californiaproperly, the SNT could greatly enhance Mary's quality
Medi-Cal program (known as Medicaid in statesof life beyond what she could afford from support
outside of California).payments, alone. By the same token, John may
To make this work, the SNT would have to be set uplikewise feel that he has helped Mary better meet her
properly. This would most likely require a court orderliving expenses, and feel better about his ability to
as part of their divorce, wherein the court would orderassist her live on her own after the divorce.
the support payments irrevocably assigned to theThe same principles would apply if the divorcing couple
SNT, even while the court would still retain the powerhad a disabled child who was receiving SSI or other
to modify, terminate and enforce the support order.public benefits. If set up properly, child support might
Upon such court order, John would then make thealso be channeled into a SNT for the child in a manner
support payments directly to the trustee of the SNT,so as to permit the disabled child to also retain his or
instead of to Mary.her SSI benefits and linked Medicaid.
The SNT would be managed by an independentUnfortunately, it is relatively seldom that we see the
trustee. The trustee should be someone whom MarySNT used in the divorce context. More often, we see
trusts, or perhaps a professional trustee. The trusteethe SNT used to shelter large injury settlements for a
must have full discretion as to the amount and naturedisabled infant or minor, or sometimes to shelter an
of payments to be made on Mary's behalf. However,inheritance. Attorneys otherwise skilled at handling
if discussed ahead of time, this should not be adivorces (called 'dissolution of marriage' in California)
problem.are usually not familiar with either public benefits law or
None of the payments could be made to Mary,the proper use of SNT's in the context of divorce, and
directly, as such cash payments would reduce her SSIhence the trust is under utilized. The good news,
on a dollar-for-dollar basis; rather, they would need tohowever, is that the technique is available in the proper
be paid, instead, directly to Mary's creditors andsetting.
providers of goods and services to her. In this regard,The appropriate use of a Special Needs Trust in
there are two categories of creditors that the trusteedivorce proceedings can greatly enhance the standard
might pay: (1) those who will furnish to Mary productsof living for the disabled spouse or child and, by so
or services other than food or housing, or (2) thosedoing, help promote a greater measure of
who will furnish Mary food or housingself-sufficiency. Those looking out for the best
With respect to the first category (items that are NOTinterests of the disabled spouse or child would do well
food or housing), the trustee of the SNT could pay outto consider its use in the proper circumstances.
any amount the trustee deemed appropriate. Provided