Imagine this: Your loved one with special needs finally gets the top-notch care they need. Therapists, specialists, equipment, medication – the works. You’ve never seen them happier, but then a giant bill crash lands on your doorstep, shakes the foundation for this picture-perfect scene, and causes reality to set in. You wonder if you can really afford both essential and supplemental care. Too often, people like you feel they must choose one or the other. But what if we told you that you don’t have to let money stand between your loved one and the care they deserve? Special needs trusts give them the best of both worlds. Still, it’s essential to understand the rules that govern them. Even the slightest mistake can severely jeopardize your loved one’s security and financial future. As such, special needs trust violations can have immeasurable consequences on their quality of life and well-being. Here’s what to know about them and how to avoid them.
What Are California Special Needs Trust Violations?
Still, it’s important to remember that not everybody has the ability to have a special needs trust. It usually comes from a situation involving a malpractice suit or families with ample resources. So ensure that you are dealing with a special needs trust before learning about the violations.
Essentially, two types of special needs trust violations exist. These violations boil down to trustee misconduct and using the assets to pay for the wrong things. Here’s what to know, how to identify them, and what you can do to safeguard your loved one against them.
Related Article: A Guide to Administering & Managing a Special Needs Trust
Money Mistakes
Maintaining eligibility for benefits is, ultimately, one of the most important considerations regarding special needs trust violations.
Now, understanding what a special needs trust can pay for can be complicated as it requires extensive knowledge of these specialized trust laws. Below, we have provided a comprehensive overview of what they can pay for if you want more information.
Moreover, it’s crucial to understand that paying for some expenses with the trust could potentially disqualify a beneficiary from receiving government benefits. Generally, there are categories of expenses considered risky in terms of maintaining eligibility for benefits:
- Cash Distributions: Direct cash payments to the beneficiary could be considered income, which can severely impact SSI and Medicaid eligibility.
- Basic Living Expenses: Paying for food and shelter costs could make them ineligible for SSI benefits and even Medicaid.
- Medical Services: Paying for medical services that Medicaid would typically cover could be problematic and lead to issues with eligibility.
- Assets or Resources: Purchasing assets that increase the beneficiary’s resources beyond eligibility thresholds could disqualify them from receiving benefits.
- Specific Types of Transportation Costs: Buying a vehicle without proper structuring within the trust could affect their resource limits.
- Unapproved Home Purchases: Purchasing a home without proper structuring within the trust or that leads to increased beneficiary assets could impact eligibility.
- Life Insurance Policies: Buying life insurance policies that could increase the beneficiary’s countable assets could hurt the beneficiary’s eligibility.
- Specific Types of Investments: Investments that could yield income or increase the beneficiary’s assets beyond the allowed limits could disqualify them from receiving benefits.
- Gifts or Loans to Others: Using trust funds to make gifts or loans could be perceived as divesting resources and could lead to severe problems.
- Education Expenses: Certain education expenses, if not structured correctly, could substantially impact benefit eligibility.
You should always consult with a legal professional experienced in special needs trust laws when setting up or amending a trust, and you should always work with a professional fiduciary familiar with California-specific laws and policies to manage it.
It may be tempting not to pay for a professional fiduciary to administer and oversee the trust, but only a professional will have knowledge of these rules and regulations to ensure that they do not jeopardize your special loved one’s quality of life and security.
Still, there are other types of violations that you should be aware of regarding these types of trusts that are far more ill-intentioned than ignorance, which is another reason hiring a professional fiduciary is crucial to managing this trust.
Related Article: What Can a Special Needs Trust Pay for in California?
Trustee Misconduct
A trustee must operate under what is known as their fiduciary duty, a legal obligation to act solely in the best interests of both the beneficiary and the trust itself. Breaches of this duty are also considered special needs trust violations.
Misusing funds is one of the most common violations. Misusing funds refers to situations when trust funds are used for purposes that do not directly benefit the beneficiary’s care, comfort, and well-being. Common examples of this violation include a trustee:
- Using trust funds for their own expenses
- Spending on items or services that do not contribute to the beneficiary’s needs or improve their quality of life
- Making risky investments or investments that are not aligned with the beneficiary’s long-term needs
Breaching their fiduciary duty is another common violation for special needs trusts. A trustee must always act with the utmost good faith, loyalty, and care in managing the trust and be communicative. Common examples of this violation include a trustee:
- Failing to file taxes for the special needs trust or filing them late.
- Not communicating with the beneficiary or their guardian about how they are administering and managing the trust.
- Investing trust assets in a risky manner that could hurt trust assets.
- Engaging in activities or decisions where there is a conflict of interest, where the trustee’s personal interests conflict with those of the beneficiary.
Another violation is failure to comply with trust terms. In the management of special needs trusts, a crucial aspect is adhering to the specific terms outlined in the trust document. Each trust is tailored to the beneficiary’s needs and circumstances. Common examples include a trustee:
- Overlooking or deliberately ignoring stipulations in the trust document.
- Misunderstanding the terms, leading to incorrect management decisions.
- Engaging in actions not permitted by the trust document, like unauthorized distributions or investments.
The average person will likely be unaware of what this duty means and what they must do to fulfill it. When you work with a professional fiduciary, you can rest assured that they will be objective and understand the gravity of this responsibility, thus always acting in the beneficiary’s best interests.
Related Article: What Are the Responsibilities of a Trustee of a Special Needs Trust?
How Can You Identify Special Needs Trust Violations?
Identifying and addressing these violations quickly is crucial to safeguarding the rights and resources of your loved one. Some common signs that these violations are occurring include:
- Unexplained (and often rapid) depletion of trust funds without clear or justified reasons.
- A lack of regular accounting.
- Reports from the beneficiary about unmet needs or concerns regarding trust management.
If you believe the trustee of your special needs trust is exhibiting this behavior and committing any of these violations, then contacting an attorney is crucial. An attorney can help you remove and replace them with a professional fiduciary.
“Special needs trust violations can be devastating for your loved one. Not only could they lose essential government benefits, but trust funds misused for the wrong things could leave them without the care they need. Hiring a professional fiduciary isn’t exactly hiring a superhero, but they will be able to protect your loved one’s future and well-being and, if necessary, save them from an unfit trustee.”
– Marcia L. Campbell, CPA & Professional Fiduciary
Related Article: Choosing a Trustee for a Special Needs Trust
Do You Want to Ensure You Avoid Special Needs Trust Violations for Your Loved One? Work with a Professional Fiduciary.
Special needs violations can cause financial harm to your loved one, emotional distress, and the loss of government benefits. The importance of diligent and upstanding trust management cannot be understated. Your special needs loved one deserves a trustee who will adhere to legal standards and act in their best interest, so hiring a professional fiduciary is crucial.
Give your special needs one the life they deserve to give yourself peace of mind, and always hire a professional to manage your special needs’ trust.
