If you practice in estate planning or elder law, you likely have heard of special needs planning. You know you should plan for a beneficiary who has special needs by creating a special needs trust (SNT) to hold their inheritance. But what about including contingent SNT provisions in the client’s revocable living trust? Let’s talk about what exactly this type of planning is and why it is important.
If your client is creating a revocable living trust, they likely have beneficiaries who are individuals. These individuals could be on public benefits at the time of inheritance. Many public benefits have resource limits and thus, the inheritance could disqualify the beneficiary from receiving further public benefits. In order to curtail this possibility, the client can include contingent SNT provisions in their trust. These provisions say that if the beneficiary is on public benefits, their share will be held according to the SNT provisions.
The SNT provisions are designed in a way so as to allow the beneficiary to benefit from the trust property (their inheritance) but still maintain eligibility for public benefits. The two types of distribution standards are supplemental or supplemental and discretionary. The former only allows the Trustee discretion to distribute trust property in a manner that would not decrease the beneficiary’s public benefits; the latter would allow the Trustee to distribute in a way that would supplant the beneficiary’s public benefits. (If the SNT beneficiary is not receiving public benefits, then the distribution standard is wholly discretionary.)
Why is it important to include contingent SNT planning in your client’s revocable living trust? First, it is likely in the client’s best interests, as the provisions protect their beneficiaries. But, including SNT provisions in the client’s plan is also beneficial for you, as the attorney. This is because NOT including such provisions could lead to a malpractice claim. Why? Per the Model Rules of Professional Conduct, you must “reasonably consult with the client about the means by which the client's objectives are to be accomplished” (Rule 1.4(a)(2)) and “explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation” (Rule 1.4(b)).
In Department of Social Services v. Saunders, the Court said that by not including contingent SNT provisions, the attorney “could have been deemed to be in dereliction of their duties.” In Board of Overseers of the Bar v. Brown, the attorney drafted a Will for a client. The client had a sister in a nursing home. The attorney drafted the Will without forced or contingent SNT provisions, so the sister received her share outright, causing Medicaid-qualification issues. The attorney was suspended from practice for six months.
Unless your client is only leaving assets to charities, it is strongly recommended that you include contingent SNT provisions in their revocable living trust (and Last Will and Testament). Your job is to think about scenarios that could protect the client and their beneficiaries in the future and counsel your client on the benefits of including such provisions that provide protection. It does no harm to have the provisions in the document and not need them but could do a lot of harm if they were needed and not there.