In many ways, families who have children with special needs are similar to most other families. They share a daily routine, watch movies and eat popcorn on the weekends, and enjoy vacationing together at a beach or camp. All parents want their children to have access to good schools and the best possible healthcare. Most importantly, parents hope their children will be nurtured and respected in a caring, safe environment both in and outside the home. Accordingly, many families value the broader sense of community that often comes with attendance at a church, synagogue, or other place of worship.

Despite these similarities, families of children with special needs also have unique challenges arising from the nature of the disabilities involved, as well as the child’s long-term financial needs. The special needs trust (SNT) has become a valuable tool to assist such families with managing assets for a child’s benefit during the parents’ lifetimes and after their deaths.

Overview of Special Needs Trusts

While SNTs come in several forms, their purpose is to set aside funds for the benefit of persons who meet the federal statutory definition of “disabled.” SNTs funded with assets belonging to the beneficiary (e.g., money received from a settlement or an inheritance) are known as “self-settled” SNTs, while those funded with assets from any other source (e.g., parents, relatives, or friends) are known as “third-party” SNTs. Generally, the rules governing the use of funds in a self-settled SNT are more rigid, since they require the SNT to be used for the “sole benefit” of the beneficiary.

In addition, determining how to use the SNT funds to increase a beneficiary’s quality of life, without risking public benefits available to a beneficiary, is a primary concern of any SNT trustee. As the name implies, SNTs are designed to meet the “special needs” of the beneficiary, meaning anything other than food, shelter, and medical care that aids and promotes the beneficiary’s well being. Examples of “special needs” include clothing, furniture, electronics, vacations, travel, as well as various medical and dental services not covered under the public benefit programs such as Medicaid.

Trustees Must Follow the Rules

The rules regarding the types of allowable expenditures from an SNT are set out in various federal statutes and regulations and are administered by the Social Security Administration. State agencies that administer the Medicaid program normally follow these same rules, although some state rules do vary. Precisely because expenditures made by the trustee of an SNT are subject to review on an intermittent basis by Social Security and Medicaid case workers, it is essential that the SNT funds be used properly.

A cardinal rule of a self-settled SNT, as described above, is that expenditures must be for the “sole benefit” of the beneficiary. Accordingly, the trustee cannot use the funds to purchase items for, or give away trust money to, a third party. Certain exceptions generally are tolerated, such as purchasing customary birthday or holiday gifts to be given by the beneficiary to family and friends. Another example might be the trustee’s use of SNT funds to cover airline tickets and accommodation expenses for family members and friends who wish to visit with a beneficiary, but reside at a distant location, or to compensate a necessary caregiver to travel with a beneficiary. In such situations, there is a clear benefit to the beneficiary who otherwise might not be able to interrelate with family and loved ones without the SNT covering certain expenses.

When Is a Gift to a Religious Institution a Benefit to the Beneficiary?

An issue that may arise for the trustee of an SNT is whether to make a gift to a religious institution. For example, a parent acting in the role of trustee of the SNT might ask whether a regular gift or donation (sometimes referred to as an “offering” or “tithe”) from trust funds might be made to the church, synagogue, or other place of worship that the beneficiary attends. The general answer is that, except perhaps for modest weekly plate offerings, more substantial donations very likely would be rejected as violating the “sole benefit” requirement. A gift from the SNT of any significant amount, especially of the traditional “tithe” (typically one tenth of income), would clearly jeopardize the beneficiary’s public benefit eligibility.

Nevertheless, parents who are raising or who have raised children with special needs will attest to the many benefits, besides spiritual edification, that a child receives by participating in a local spiritual fellowship. Socialization, education, development of self-esteem, and inter-reactive skills can be gained or enhanced by participation in a caring spiritual community. For such significant benefits to their child’s well being, the trustee (and parents, if living) may desire and feel a sense of responsibility to contribute in some meaningful way to the operational costs of the religious institution. Although significant general contributions from the SNT would likely run afoul of the “sole benefit” rule, it may be possible through more targeted contributions and good record-keeping for the SNT trustee to benefit the religious institution and still comply with the sole benefit restriction.

For example, the federal rules and regulations by which the SNT trustee must be guided clearly allow the trustee to make reasonable payments to persons or entities that provide a valuable special needs service to the beneficiary. Under this rationale, it may be possible for the trustee to make an appropriate contribution to a place of worship, community fellowship or other charitable organization that provides a tangible service to the beneficiary. The following vignette demonstrates how a faith community can provide just such a valuable service.

Miss Marla’s Special Needs Sunday School Class

Marla is a special education teacher with the school district in Anchorage, AK. Her task is to teach children with particularly challenging special needs. Her passion is for working with children living with autism.      

Not long ago, Marla, who regularly attends a local Presbyterian church with her family, breathed life into an idea she had been considering for some time. Marla was convinced that children with special needs have a capacity for spirituality. According to her, “they have the ability to learn about and experience God as the rest of us do.” So, Marla put her firm belief into action and launched her program with two other professionals in the Sunday School wing of her church. Without regard to any faith persuasion, she invited members from the greater community to bring their children with autism to the one-hour Sunday School class.

Marla employed special skills in teaching and interrelating with her students. She steered away from overly verbal lessons and instead focused upon the use of simplified stories of spirituality, heavily bolstered by pictures and animations. She had her children sing simple, rhyme-like songs, emphasizing the love of God. In this way, she was able to impart information in small, simple bits, laced with an abundance of visual and mobile fun activities.

Within a few months after Marla started this unique Sunday School class, she received overwhelmingly positive feedback from the attendees’ parents and the special needs community as a whole. Parents who previously had no means of involving their child with autism in spiritual training or communal worship expressed their gratitude at having a door opened to their children. One parent wrote, “What a joy to watch the children gain spiritual knowledge and grow in faith. The concept of God has become real to my son in ways my home training did not even touch. We have been privileged to see him sign ‘God’ and then say ‘God’ and try to sing to God for the first time in this class.”

Justifying a Charitable Gift from an SNT

Is the child with special needs who attends a religious/educational program, such as Marla’s Sunday School class, receiving a benefit that would justify the trustee of the child’s SNT in making a reasonable contribution to the faith community sponsoring that program? If so, what would be a reasonable contribution under the circumstances?

Identifying Specific Benefits Provided

A trustee may find support for such an expenditure in the federal rules and regulations that set the guidelines for “special needs” distributions. For example, expenditures for medical (including psychological) services not otherwise covered by Medicaid may be paid for by an SNT. Also, tuition and related costs for education for the beneficiary qualify as “special needs” distributions as well. Following this reasoning, the benefits provided during a spiritual training program at a faith community arguably provide a genuine educational and psychological service for which an appropriate donation related to the value of such service is warranted. To further establish the relationship between the expenditure and the benefits provided, the SNT trustee may wish to specifically designate that such regular donations be used for the institution’s educational program. In the same manner, the trustee should obtain a letter from the beneficiary’s doctor confirming the medical/psychological benefits received by the child’s attendance at the program and recommending continued participation.

Determining a “Reasonable” Contribution

How much of a monthly distribution from the SNT might be reasonable for a child’s participation in a faith community’s educational programs? Again, the trustee should weigh the benefits and services provided. How might one value a secular educational service where the child with special needs is cared for by a professionally trained staff for one hour a week? The hourly rate charged by a professional special needs day-care center in the community might provide a reasonable indicator of the fair value of such service. In addition, the trustee may find additional support from the terms of the SNT itself, which may explain the types of expenditures which are permitted. In general, the trustee should always be guided by prudence and sound judgment in making such decisions.

Furthermore, because the rules regarding special needs expenditures may be interpreted with varying levels of rigidity by Social Security and Medicaid case workers throughout the nation, the trustee should consult with a special needs trust attorney practicing in the area where the trust is established, who would be familiar the local application of such rules. However, when the trustee is able to produce good back-up documentation, and the expenditures at issue are reasonable in light of the special needs benefits provided, generally the Social Security or Medicaid case worker will view the expenditure favorably.

Conclusion

It is possible for a trustee of an SNT to make a distribution of trust assets to the special needs child’s church, synagogue or other house of worship in nominal amounts. However, because a self-settled SNT in particular requires expenditures to be for the beneficiary’s sole benefit, the trustee should be prepared to justify the contributions on the basis of the benefits provided to the beneficiary. For the child with special needs, such benefits might include educational training, socialization, development of a sense of identity, and inclusion in the community, as well as the opportunity to discover spiritual awareness, or as Miss Marla more aptly stated it, “an ability to learn about and experience God.”

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Ernest M. Schlereth has practiced law in Anchorage, AK for over 30 years. He focuses upon elder law, estate planning, Medicaid planning, special needs trusts and probate litigation. He is a recipient of the Hope Community Resources, Grace and Aram Wolf Memorial Award for his involvement in extensive litigation protecting the rights of individuals with developmental disabilities from exploitation and financial abuse. Mr. Schlereth is a member of the Special Needs Alliance, a national, non-profit organization committed to helping individuals with disabilities, their families, and the professionals who represent them. Contact information for a member in your state can be obtained by calling toll-free at 877-572-8472 or by visiting www.specialneedsalliance.org.