Once a special needs trust (SNT) has been established, it either terminates at the death of the primary beneficiary or in the event of specifically stated circumstances noted in the language of the trust. Those terms allowing an SNT to terminate during the beneficiary’s lifetime may include:
- A change in eligibility for government benefits;
- A change in physical or mental abilities that would preclude the beneficiary from qualifying for benefits; or
- The SNT no longer has sufficient funds.
SNTs are typically irrevocable which means they can only be revoked under special circumstances, if at all. SNTs exist in the form of first party, first party pooled, third party and third party pooled trusts. First party trusts hold assets belonging to the beneficiary while third party trusts hold assets of anyone other than the primary beneficiary.
Terminating Upon Death
When an SNT terminates at the death of the primary beneficiary, the trustee must pay all final expenses and taxes prior to distributing remaining assets to those named to inherit. With first party SNTs, the trustee must also reimburse Medicaid for any services rendered. Third party trusts are not required to reimburse Medicaid.
Terminating the SNT prior to Death
Maryland law requires that the decision to close an SNT must be made by someone other than the beneficiary and that termination benefits no one other than the beneficiary. The end of government benefits may not be the sole reason to justify termination of an SNT. The beneficiary may benefit from continued use of the trust to assist in managing finances. Another benefit may be to protect the assets from creditors. All factors will be considered in order to determine what is in the best interests of the beneficiary.
Modification Rather than Termination
It may come to light that a modification of the trust language is more beneficial than a termination of the trust entirely. This is still not a simple process. Some common reasons a modification may be needed include:
- Proper special needs planning was not conducted and the language of the trust creates harm to the beneficiary;
- Changing terms to make the trust more tax efficient;
- Changing the trust situs; or
- To reflect necessary changes that have occurred that could not have been foreseen.
Modifying or terminating an SNT is a complicated matter that requires the assistance of experienced estate planning counsel who is knowledgeable in the specific area of special needs planning. To create, modify or terminate a special needs trust, contact the attorneys at Stouffer Legal in the Greater Baltimore area. You can schedule an appointment by calling us at (443) 470-3599, emailing us at office@stoufferlegal.com, or register for an upcoming free webinar using the link below:
https://attendee.gotowebinar.com/register/3245461877519754507
https://attendee.gotowebinar.com/register/1120077313768831760
https://attendee.gotowebinar.com/register/686049496752088592
