Hyden, Miron & Foster, PLLC Law Blog

Monday, October 17, 2016

Arkansas Supreme Court Clarifies Requirements for Special Needs Trust

What complications may arise with a special needs trust?

Ensuring that our loved ones are cared for when we are gone is important. It gives us peace of mind. This is especially true when we are caring for loved ones with physical or mental disabilities.  Planning for the care of disabled individuals takes careful consideration of their needs, as well as the requirements of federal and state laws. 

One of the mechanisms that we can use to ensure the care of our loved ones with special needs are special needs trusts, or SNTs, which are special kinds of trust accounts that enable individuals to continue receiving state or federal benefits such as Social Security Disability (SSD), Supplemental Security Income (SSI) and Medicaid, while still maintain a standard of living above mere subsistence. 

There are particular rules that need to be followed when setting up and funding SNTs to avoid risking your loved one’s SSI, SSD or Medicaid benefits. Understanding these requirements is critical before dispersing your assets to a disabled relative.

In re Corn

Recently, the Arkansas Supreme Court helped to clarify how SNTs may be formed and funded when it issued its’ opinion in In re Corn.  

James S. Corn suffers from memory loss due to a head injury. He receives SSI, SSD and Medicaid benefits. His partner, Ms. Yelvington established an SNT for Mr. Corn in her estate planning documents. Ms. Yelvington also designated Mr. Corn as beneficiary for life insurance policies and bank accounts of approximately $260,000. If Mr. Corn took possession of these funds, he would become ineligible for his SSI benefits.

The SNT Trust

In order to protect his SSI benefits, Mr. Corn brought this action to create a D(4)(A) SNT (also known as a “self-settled trust”) through a court order. Mr. Corn ensured that the SNT met all of the criteria necessary for the creation of the SNT, which requires that the beneficiary be:

  • under the age of 65
  • disabled
  • the sole beneficiary of the trust

Additionally, Mr. Corn ensured that the trust:

  • would be created by court order
  • contain a payback provision for Medicaid services
  • is irrevocable
  • contained a spendthrift clause
  • included a clause preventing Mr. Corn from directing the trustee to use trust funds to pay for his support and maintenance

Circuit Court Denies Petition

The circuit court denied Mr. Corn’s petition as against public policy because of the additional assets that Ms. Yelvington had accidentally left assets out of probate that would pass to Mr. Corn. The circuit court stated that it was against public policy to protect six-figure assets when people making $30,000 a year are paying for the beneficiary’s medical care.

Supreme Court Reverses Ruling

The Arkansas Supreme Court disagreed with the circuit court ruling and found that the trust advances public policy in ensuring that Medicaid funds would be repaid and would therefore increase the availability of funds for other people in need.

Special Needs Planning

Leaving an inheritance for disabled relatives or friends can adversely impact their ability to receive state and federal assistance. That’s why it’s important to talk to an experienced special needs planning attorney.  The special needs planning attorneys at Hyden, Miron & Foster can provide you with expert advice for your loved ones. Contact us today for a consultation.

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