ElderLaw News

ElderLaw News is a weekly e-newsletter that brings you reports of legal developments and other trends of vital interest to seniors and their advocates. This newsletter is brought to you by The Estate Planning & Elder Law Firm, P.C., William S. Fralin, Esq., President.

Challenges in Special Needs Trust Administration Part II

Last week's edition of the ElderLaw News discussed several challenges facing trustees in the administration of special needs trusts (SNTs).

This week's edition completes that discussion, as presented by William Main, Vice President and Senior Trust Officer with Wells Fargo, at the recent Stetson Special Needs Trust IX seminar.

Challenge #6: Houses. Trustees often immediately face the issue of whether the trust can and should purchase a house for the beneficiary. The trustee must consider the financial implications of the purchase, as well as the suitability of the proposed house for the beneficiary. The trustee must also consider whether household expenses will be paid by the trust. Some trusts include language limiting the amount of trust assets that can be used to purchase a house. The trustee may consider preparing a real estate management agreement specifying who can live in the house, whether the others need to pay rent, and what will happen if the beneficiary has to move out of the house. The agreement should also specify who will pay the maintenance and utility costs. The trustee needs to be aware that trust payments for food and shelter items may jeopardize the beneficiary's eligibility for needs-based benefits. For example, payments for mortgages, real property taxes, rent, heating, fuel, gas, electricity, water, sewer, and garbage removal can reduce Supplemental Security Income (SSI) benefits. In many situations, it may be in the beneficiary's best interest for the trust to pay for these items even if the SSI benefit is reduced. If permitted by the trust document, the SNT can pay for real estate maintenance and upkeep, and, provided the improvements are for the beneficiary's benefit, the SNT can also pay for structural renovations, swimming pools, whirlpool baths, and recreational spaces. Titling the house is another important consideration. It may be better for the house to be titled in the name of the beneficiary or the beneficiary’s conservator, in order to limit liability for an accident on the property.

Challenge #7: Caregivers. The trustee must determine whether a caregiver is an employee or an independent contractor. An employer may be required to withhold Social Security tax, Medicare tax, and income taxes from an employee's wages. Family members and conservators often argue that a caregiver is an independent contractor because the family members and conservators do not want to pay the taxes or file the required forms; caregivers may not want their earnings reported to the IRS. The IRS, however, is strict about these issues. IRS Publication 926 outlines the tax requirements in this area. There may also be state requirements for payment of withholding and worker’s compensation taxes. Trustees should consult a tax advisor, and they may want to consider working with an employment/payroll service.

Challenge #8: Family Members as Caregivers. In many cases, family members are the primary caregivers. The trustee should consider whether the family members are qualified to provide the care needed. If the family members are not qualified to provide the level of care needed, then the trustee and family should discuss alternate care arrangements, such as having trained caregivers paid for by public benefits or the trust. If the family members want to be compensated for their services, then the trustee and caregiver should have a written agreement specifying how the rate of pay is calculated and how the wages are paid. An employment agreement can distinguish between the duties performed as parent, for example, versus the duties performed as a paid caregiver. The trustee should be aware of the beneficiary's ability to develop independent living skills, and caregiver burnout. The trustee should maintain open communication with the caregivers, and may recommend respite care when necessary. The same taxation issues apply to family members as caregivers as with non-family members. Family members may be even more reluctant to be classified as employees than non-family members. The trust, however, can be liable for interest and penalties for failing to pay withholding taxes, so it is critical that the trust follow the tax laws and regulations.


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The Estate Planning & Elder Law Firm, P.C.

The Estate Planning & Elder Law Firm, P.C. is an elder law firm. We represent older persons, disabled persons, their families, and their advocates. The practice of elder law includes estate planning, estate and trust administration, powers of attorney, advance medical directives, titling of assets and designations of beneficiaries, guardianships, conservatorships, and public entitlements such as Medicaid, Medicare, Social Security, and SSI, disability planning, income tax planning and preparation, care management, and fiduciary services. For more information about The Estate Planning & Elder Law Firm, P.C., please visit our website at http://www.chroniccareadvocacy.com.

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