We often draft special needs trusts to hold funds for the care and benefit of an incapacitated spouse or child in a way that those funds will not disqualify that person for essential Medicaid benefits.  We have also found that many attorneys and others do not understand the legal requirements and issues that govern such trusts.  This confusion was recently pointed out in a court decision involving a special needs trust for an incapacitated wife’s inheritance.
Cathleen Bass Skinner suffers from cognitive and physical difficulties.  In 2010, Cathleen and Mark Skinner were married, and he was appointed as Guardian of her estate.  Her mother later died, leaving Cathleen an inheritance of $200,000 – 250,000.  The court ordered that Mark Skinner be appointed as Trustee of the Cathleen Bass Skinner Special Needs Trust and that Cathleen’s inheritance funds be placed in the trust.  This “special needs trust” (SNT) allows her to keep Medicaid benefits but contains an obligation to pay back Medicaid expenses at Cathleen’s death and requires that payments from the trust be for her “sole benefit.”  The Trust was funded in June 2014 with an initial distribution from her mother’s estate of $170,086.67.  Shortly thereafter, Mark Skinner used trust assets to purchase a house where he and Mrs. Skinner live together, as well as some furniture and appliances.  He later paid from the trust for her prepaid burial insurance and his attorney’s fees for the guardianship proceeding.
Cathleen’s sister, Nancy, asked the court clerk to remove Mark as trustee for not providing her with statements of the trust.  In removing Mark as trustee, the court clerk entered an order concluding 1) that the purpose of a special needs trust is to preserve assets only for future medical needs; 2) that the SNT was prohibited from purchasing prepaid burial insurance for Cathleen; 3) that it was a violation of the “sole benefit rule” for the SNT to purchase a house, furniture and appliances because Skinner could benefit as well; and 4) that Skinner engaged in a breach of trust by using trust assets to pay for attorney’s fees incurred for the guardianship that arose prior to the establishment of the SNT.  However, the appeals court reversed this order and reinstated Mark as trustee, finding that the conclusions of the clerk about the purposes of the trust and the propriety of the disbursements were erroneous.  In re Estate of Skinner, 2016 WL 3394410 (N.C. App. June 21, 2016).
We have dedicated years to understanding the law, policies and practical administration of special needs trusts for persons with disabilities.  Therefore, if you think a trust will help you plan for the care of a spouse with dementia or other incapacities or a child with a disability, call us for expert assistance with this important planning.
To arrange a meeting to discuss your rights and options, contact our office online or call us at 601-987-3000.