ABOUT TRUSTS

What is a Trust?

A trust is a legal arrangement in which one party (individual, group, or organization) holds and manages property for the benefit of another. The person (or persons) who benefits from the property, the beneficiary, does not own or control it. The person (or persons) or organization that manages and distributes the property, the trustee, does not benefit from it, other than reasonable compensation for services. A trustee is obligated by law to manage the property prudently, obey the instructions of the person who created the trust (called the settlor or grantor), and provide reports and accountings on a regular basis. There are many different kinds of trusts.

What can be put into a Trust?

A trust may accept money, stocks, real property, and other assets. What is acceptable for a particular trust may depend on the language of the trust. It may also depend on decisions made by the trustee. A trustee must be willing and able to accept the responsibility of administering the trust, including the assets within it. For instance, managing property is very different from managing funds. In the individual case, this is a matter to discuss with your own attorney. The Arc Community Trust accepts mostly liquid resources but in some circumstances may accept other assets as well.

What are the responsibilities of the Trustee(s)?

The Trustee is required to manage the funds prudently, without personal profit; to follow the instructions in the Trust, as well as the applicable laws; and to provide regular reports to the settlor and/or the beneficiary; the State; and sometimes the courts. These responsibilities will be divided between the repository banks and the Arc Community Trust, together with any co-trustee appointed.In addition, for the purpose of these Trusts, the Trustee is expected to manage the funds well but not necessarily to preserve them in all cases. Thus the money should be spent appropriately during the life of the beneficiary. You may leave instructions to that effect if you like.A successor trustee is one who is appointed in case the original trustee can no longer act or is no longer available.

ABOUT THE ARC COMMUNITY TRUST OF PENNSYLVANIA

What is The Arc Community Trust of Pennsylvania?

The Arc Community Trust of Pennsylvania is actually a group of trusts, set up to meet the needs of those with disabilities without jeopardizing their eligibility for government benefits or increasing their financial liability for government services. The purpose is to allow parents and others, as well as beneficiaries themselves, to set aside and designate funds or other property to be used for the supplemental needs of the beneficiary, while government benefits take care of basic support and maintenance.

 Until the early 90's, the receipt of funds or other assets sometimes made the disabled person ineligible for government benefits, such as Medical Assistance, SSI, and various services. Now there are ways to shelter these assets in order to use them to enhance the quality of life of the disabled person. Even people who do not use these benefits now might need them later.

Although there are many kinds of trusts, those administered by the Arc Community Trust are trusts for special or supplemental needs, that is, those needs beyond general care, maintenance, and support.The Arc Community Trust of Pennsylvania is open to families with any kind of disability, including developmental disabilities, chronic illnesses, injuries, and others. Together with your attorney, we can help you decide whether this is the best plan for you.

What are the advantages of using The Arc Community Trust of Pennsylvania?

There are many advantages:You have flexibility in providing for your child’s future, without risking his or her eligibility for government benefits (or for the future of any disabled person you care about). If you are planning for yourself, you want to be able to keep your benefits.Setting up the trust is less expensive and will remain so, since most of the work has already been done and the costs may be shared by others.

The Arc Community Trust

1) deposits trust funds into banks with which it has made special arrangements for preferred management fees and

2) charges low administrative fees. Thus, the total costs are lower.

3)The pooling of funds in our 'Pooled Trust,' one form of special or supplemental needs trust, makes it possible to reach more people and to accept smaller amounts of money, so that many more families have access to the advantages that such a trust confers, including the same high level of professional financial management.

The Arc Community Trust provides continuity that is generally not available with an individual trustee or even with a bank. There is less need to designate a group of potential successor trustees. Individuals may not always be there, but the organization will be.

The Trust is staffed by people who have worked to become familiar with the issues that you and/or your child deal with on a daily basis. They will attempt to give knowledgeable, individual attention and advice, now and later. When possible, they will know you and/or your child personally and will be informed about and connected to local resources. Careful planning may also mean that your child will not need a guardian later.

What kinds of things would be considered special, or supplemental, needs?

Generally, anything that would not contribute to direct support. You may give examples or provide a list in the trust document. For instance, the following are supplements that such a trust can cover: nonfood grocery items; bus pass; pet and pet care; sports equipment; tickets to events, including for a companion; cable TV; medical care not otherwise provided; computer; classes and other training and education; trips; counseling; CD’s; air conditioning. What is appropriate will be different for each person.

ALTERNATIVES TO A TRUST

I have only a small amount of savings. Why should I be interested in the Arc Community Trust?

If you plan to leave anything to your disabled child, you want to make sure it can be used to enhance his or her quality of life. Unlike most banks and trusts, The Arc Community Trust will accept small deposits, especially in our Pooled Trust. If you set up and fund the trust now, the money can be used immediately for supplemental needs. If you keep the trust unfunded, and leave money for it in your will, the funds will be available for supplemental needs after you die. You may add to your trust whenever you are able.

What will happen if I just leave money to my disabled child in my will?

Unless the amount of money you leave is very small, your child may become ineligible for government benefits until he or she has used up this money for basic necessities. In particular, he or she may become ineligible for Medical Assistance, which covers a wide variety of services. After the money is used up, he or she will have to reapply for Medical Assistance, which takes time.

Should I just disinherit my disabled child to maintain eligibility for government benefits?

You may do so if you choose. However, taking this course alone may deprive you and your family of the opportunity to enhance the quality of your disabled child’s life after your death. It may deprive your child as well.

What will happen if I leave money to my other child(ren), with instructions to use some of it for the benefit of the disabled sibling?

For some families this may be a workable arrangement. However, this is what is called precatory language; it requests, but does not require. There is no legal requirement or guarantee that the funds be used as you directed and no supervision or accountability. The sibling may not handle the management and investment of funds adequately; or if the sibling moves away, dies, becomes incapacitated, gets divorced, or goes into debt, the funds may not be used as you intended. Thus your disabled child may be left without resources.

Why should I try to maintain my child’s eligibility for government benefits if I have adequate income to care for him or her?

If you have considerable assets, you may be able to cover all your child’s expenses. However, specialized care can be very costly and use up funds quickly. Besides, even if you can pay for these now, you may still want to make arrangements for a time when you can no longer do so. This is a topic to discuss with your attorney.

CHARACTERISTICS OF TRUSTS

What is a pooled trust? A payback trust? A common law trust?

There are several kinds of special or supplemental needs trusts used to shelter funds so that the beneficiary remains eligible for government benefits.

A 'pooled trust,' sometimes called an OBRA Trust or a Medicaid Qualified Trust (MQT), can be set up only for the benefit of a disabled individual. It must be created and managed by a non-profit association and can be set up by the disabled individual, or by a parent, grandparent, guardian, or court. The funds in each separate trust are pooled with others for the purpose of investment and management, but each beneficiary has an individual account and receives individual statements. When the beneficiary dies, the remaining funds become part of the general pool, where they can be used for the benefit of other persons with disabilities (or, if you choose, they can be used to pay back Medical Assistance).

A 'payback trust' is also set up for the benefit of a disabled individual under the age of 65, and with his or her own funds (e.g., from an inheritance or malpractice award). It may be established by a parent, grandparent, guardian, or judge (court), but not by the disabled individual, or beneficiary. At the beneficiary’s death, the remaining funds must be used to pay back the State for Medical Assistance benefits received. If there is any money left after payback, it may go to whomever the settlor or beneficiary has designated.

'Common law special needs trusts,' established with funds not belonging to the beneficiary, do not involve payback. Sometimes all of these trusts are called Special Needs trusts (SNTs).Federal Law: Payback trusts and pooled trusts were originally defined and recognized in federal legislation as part of OBRA 93 and are codified as 42 USCA § 1396p(d)(4)(a) [payback] and (c) [pooled]. They are exceptions to the requirement that all funds available to the disabled person be used for care, maintenance, and support. The change in the law allows the funds to be defined as unavailable and covers only persons who meet, or could meet, the federal definition of disability.

Pennsylvania Law:

In addition, Pennsylvania legislation has recognized and supports pooled trusts for persons with disabilities. The documents for the Arc Community Trust's pooled trust have been approved by the regional offices of DPW, PA Attorney general, and SSI. However, with other kinds of trusts, knowledgeable drafting of the trust documents is crucial to obtaining recognition as an OBRA or Special Needs Trust.

A third type of trust sometimes used to preserve entitlements is the 'common law special needs trust.' The courts of Pennsylvania have recognized that these trusts do not constitute available assets (leading to a finding of ineligibility) when they are set up properly. The trust’s language must prohibit disbursements which would render a beneficiary ineligible; clearly state the intent that the trust supplement but not supplant governmental benefits and entitlements; perhaps name other potential beneficiaries and remainder beneficiaries; and leave all distributions to the discretion of the trustee. In addition, a common law special needs trust cannot be established with assets of the beneficiary.All these trusts are generally called Special Needs Trusts (SNTs).

For any of these or any form of trust, you will need an attorney with considerable experience in this area of the law. The Arc Community Trust will accept all the trusts above.

What is a discretionary trust?

A discretionary trust is a trust which gives the trustee discretion as to whether and when to make distributions, as compared to a mandatory trust, which creates enforceable rights to income or principal which the trustee is obligated to pay out at specific intervals. In a discretionary trust, others may make requests or suggestions, but only the trustee can make the decision. The trustee is also not obligated to make regular, required disbursements.The reason is that, if a distribution could be compelled for food, clothing or shelter, or basic support of the beneficiary, the funds would be considered available resources. In the same way, regular and predictable disbursements would be considered available for support, care, and maintenance. All Special Needs Trusts are discretionary trusts for this reason. The beneficiary, or the person acting for him or her, must request disbursements. The basic idea here it that, in order to shelter these funds, you must give up control of them. If someone else has control--that is, the trustee--then the government does not consider them available.

What is an irrevocable trust?

It is one that cannot be undone or changed in any material way. All the trusts in the Arc Community Trust are irrevocable, in order that the funds not be considered available for care, support, and maintenance.What is an inter vivos trust? “Inter vivos” means between living people and refers to a trust set up and funded during the life of the settlor. In contrast, a testamentary trust is one you establish or fund in your will. The Arc Community Trust accepts both.

HOW THE TRUSTS WORK

Who decides how the funds in my Trust are to be spent?

You can---and should--- provide guidelines and suggestions in the trust document and the Letter of Intent, but the decision is always up to the trustee(s). That is, the trustees have sole discretion, and this is a discretionary trust.

Can my child make requests, or others involved with him or her?

Certainly. In some trusts, you may make a family member a co-trustee or advisor. As an advisor, the family member would not have the power or responsibility of a trustee, but could have a substantial influence on how the funds are used. Many relatives would prefer such a role, with the actual responsibilities falling to outsiders.You may also include in your trust document a list of those authorized, including your child, the beneficiary, to make requests.

Who will keep track of my account?

The staff of the Trust will provide you and/or your beneficiary with regular reports. You may also call and ask for information at any time. In addition, the Trust may be required to provide regular reports for your protection, for instance, to the State.

Must I put money into the Trust now?

No, you may leave your trust unfunded. This means that you set up the trust and identify the designated sources of the trust property and the events that would actually bring this property into the trust. Usually this is a will but could also be an insurance settlement or other inheritance or payment. If you decide on a testamentary trust, you will need to have a will that is consistent with your trust document, or the trust can be part of the will.

Does the Trust pay taxes?

Many trusts must file tax returns and are subject to taxes; however, since the purpose of these trusts is to use the funds for the beneficiaries, there are not likely to be any profits to tax.

PLANNING

Can I leave real property to the trust?

Yes, we will accept real property, as long as you can make sure that it is in reasonably good condition and that there are also funds for maintenance of the property. Sometimes parents want to leave the family house to the trust in order for the beneficiary to continue to live there. The beneficiary may be expected to contribute because by definition the Trust cannot be solely responsible for shelter. In such cases the beneficiary’s government benefits may cover much of the costs of living there but will not be adequate for general maintenance and major repairs such as a roof. If there are funds available to manage and maintain the property, the Trust will do so as long as it can be done. This is a matter to work out with your attorney and will take considerable planning.

Can other people contribute to the Trust?

Yes, subject to the same conditions as the original settlor(s).

What will my trust cost?

Our fees are based on the size of the trust, and are usually much lower than the fees a bank would charge.  If you are considering using our services we would be happy to provide you with a copy of our current fee schedule.

What if there is money left in my Trust when the beneficiary dies?

If it is part of a pooled trust, the remaining funds will become part of the pool in order to help other members.If it is part of an individual Special Needs Trust (payback), the remaining funds will be used to pay back the state for Medicaid benefits paid on behalf of your beneficiary. However, if the amount owed is large, the State will take only what is left in the Trust and cannot collect more. If there is money remaining in the Trust after the State has been paid, it may be left by you or the beneficiary to anyone you choose.For other kinds of trusts, please consult your attorney.

If I set up a well-designed Trust, do I need to do anything more for my disabled child?

A trust alone is not enough to ensure the quality of life that you want for your disabled child---and that he or she may want as well. Setting up a trust is part of a planning process that includes what we call a Letter of Intent. This is a non-legal document which reflects what is important to you and your child in terms of daily routines, likes and dislikes, trusted people, future plans, and more. It is a way to communicate the things you know that others may not, things that have special meaning and increase the chances of good choices and the best life possible for your child. It also provides your child a chance to speak for him or herself and to have his or her wishes acknowledged and recorded, and ways of implementing these goals well thought out. In addition, it is a way to identify people, services, and resources that will make it more likely that your child will enjoy a greater level of independence and self-determination.As with any plan, a Letter of Intent should be reviewed periodically to reflect any changes. And planning should also include a will and other important legal documents.

My child is very young. Why should I think about these issues now?

If you should die or become disabled, those who care for your child(ren) will need guidelines. If you have minor children, you should make plans for all of them. In addition, your estate should be managed in the way that promotes the best interests of your disabled child, minor or adult.Developing a Letter of Intent and an appropriate trust now may increase the likelihood of a smooth transition and good care for your child. The best time to plan is before you really need to do so. You can always make some changes later. If something should happen to you and there is no plan for your child, the courts will make one. And how well does the court system know your child?

Can I complete a Letter of Intent without setting up a trust?

Definitely yes. We will support you in all your efforts to develop plans for the future of your child. You can call just to ask questions. Besides, even if you have limited funds and cannot make extensive financial plans, you should still have a Letter of Intent.

Will I still need an attorney?

Yes. There are many aspects to estate planning, and you will want someone who has both expertise and patience. The legal expenses are likely to be less because the Arc Community Trust has already developed and will make available several relevant documents. In addition, you may not be responsible for the cost of setting up a brand-new trust, only of joining what already exists. We will work with your attorney; or, if you do not have one, refer you to several in your area.

OVERSIGHT

Who will watch over my money and supervise the Trust? Are there any protections?

Since trustees are held to a very high standard of responsibility, there are many protections. For instance, the bank Trust Department and the Finance Committee of the Arc Community Trust Board oversee the investment and management of the funds. Currently, we are using PNC Bank to manage the investment of our pooled trust. They are under the jurisdiction of the Pennsylvania Department of Banking. If you wish to set up a Payback or Common Law Trust, the assets can be managed by PNC or we will work with a financial institution of your choice.  For the pool, the Trust will be required to send an annual report to the Pennsylvania Attorney General and to show that funds used were for the benefit of the named beneficiary. Institutional settlors, such as school districts, and any courts involved, may require regular accountings. The courts may also require that certain expenditures be approved. The members of the Board of Directors of the Arc Community Trust are responsible for the operations of the Trusts and take these responsibilities very seriously. The regular reports allow settlors and beneficiaries to keep track of the funds in the relevant account and to ask any questions that they may have.

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