STEP 2 : CHOOSE THE RIGHT TRUST FORM

Standalone v. Testamentary/Sub-Trusts (3rd Party)

Some lawyers choose to create a supplemental needs trust within a will (testamentary) or another seperate trust document (subtrust). This can save clients money when drafting documents, and in some situations may be a cost-efficient solution for creating a supplemental needs trust. Often, however, this can lead to complications when it comes to administration, or inheritances and gifts from other family members. Here are a few such challenges:

1. When an SNT is created in a will, or as part of another trust, that trust doesn’t exist until it is triggered, e.g., when someone dies and the trust is created as a part of the will. While this may cover the primary need of the trust, it raises a few issues that families frequently encounter. The first is the unplanned gift or inheritance from another family member. As an example, grandma passes away and leaves each of her grandchildren $25,000. This money cannot go into a trust in mom and dad’s wills, because while they are alive, that trust doesn’t exist.
2. When a trust is used to pay for certain expenses, or applications are made for various government services, often the trust needs to be produced, in its entirety. This means that in a trust created under a will, the will must be shared, or the terms of a living trust in the case of a sub-trust. Many families feel this is an unnecessary violation of their privacy.
3. Trusts created under wills/sub-trusts need time upon the grantor’s (parent’s) demise to be set up, accounts need to be opened, tax ID numbers need to be established, and more. In some cases, trustees find out for the first time, that they have been appointed and need to get up to speed before they can begin to fulfill their obligations. If there are probate issues, additional delays can arise. During this set-up time, which can be lengthy, beneficiaries are left waiting.
4. Sometimes the need arises to fund the trust before a grantor’s (parent’s) demise. This could be to “try out” the trustee, or for the convenience of an aging parent, who wants to offload some responsibility, or where relations between beneficiary and parents are tenuous, or, most commonly, because a parent is losing capacity themselves and need to create a mechanism to support their loved one. A trust setup under a will does not exist until the death of the parent, so it cannot be used in any of these situations.
5. Lastly, and this is a more practical than legal concern, SNTs within other trusts or wills are usually short, for the sake of efficiency and readability. Sometimes this is sufficient, but frequently parents want a robust trust that accounts for the myriad of challenges and situations that may arise. Additional protections for the beneficiary, guidance for the trustee, powers of the trustee, and successors, the various trust roles are all incorporated into larger trusts. SNTs that address these concerns can be 20 - 40 pages, or more. A document of that length is a nightmare to try to integrate into other documents, but short documents often lack critical details and protections. 

The solution: A stand-alone supplemental needs trust. This option may cost a few dollars more when creating your plan but solves every one of the above issues, and can save money in the long term. A common misconception is that by drafting a standalone trust, it needs to be funded now — this is not the case. Some attorneys like to staple $20 to the back of the trust to show that it has been established, but that is the extent of the funding requirement. You do not need to start filing tax returns, or any of the other administrative tasks that come with trust administration. Other than paying a small amount more of money on upfront legal expenses, the standalone trust option has no drawbacks, and the downsides of the testamentary trusts can be meaningful.