Setting up a trust for a sibling

[Rose Pink]

My husband's brother is in his late 50s. He has demonstrated incompetance when it comes to managing money. I think he has a schizoid illness but is not under treatment. He always has creditors after him. His credit rating must be sub-zero. He is on some sort of disability and gets public assistance although I do not know the details. That will be something DH needs to ascertain before we can proceed forward in setting up a trust for the brother.

We are getting close to selling their deceased father's house and dividing up the proceeds. My FIL's trust stipulated that the money for this son also be set up in a trust and doled out gradually but the details were left to my husband.

We cannot simply set up an account in his name as he has creditors monitoring the banks ready to garnish any deposits. We know DH's brother will end up losing his money but we'd rather it happen gradually rather than all in one lump sum. If we gave him $10K, for example, he has "friends" who would "help" him get rid of it. If we give him $50 a week, he could at least buy groceries and basic necessities.

DH does not want to babysit his brother. He is adamant that he does not want anything to do with his brother. Very bad blood, so to speak. DH wants to be able to set something up and have me monitor it from a distance so that he does not have to interface with his brother.

Can we leave the brother's share of the inheritance in Dad's trust rather than setting up a separate one? Then can the brother be allowed to go to the bank once a week (for example) to withdraw a set amount of money? IOW, some sort of arrangement made that he could not take out more than $50 a week? That way, the account is not in the brother's name but he would have access to it without having to constantly ask us for money or for us to have to mail him a check--which would almost certainly be lost or stolen.

This would work for me as I could continue to monitor the account on-line and see how often withdrawals are made. It allows DH and his brother to keep their distance. It allows Dad to have the money he intended go to his disabled son actually go to the son without being squandered in one fell swoop.

I am vaguely aware there are rules for a person receiving supplemental social security (or whatever it is called). Income would limit his payments but if that income goes directly to pay his utilities, it doesn't count. I don't know these rules and that is something we need to find out. I just want to be able to do it without opening a can of worms during the inquiry.

Any suggestions for how to proceed? We are not talking gobs of money. Maybe about 30 to 35K. My concern is that if we give too much at a time, he will become dependent on it and when it finally runs out, he will be even worse off. The more he can access, the sooner it will run out. I am trying to be compassionate and not give him more than he can handle, thus setting him up for a big fall. He could live another 30 years or so.

I want it to be legal, I want it to be fair and compassionate, I want it to honor Dad's wishes (he worked hard for it afterall) and I want it to be as easy and hands-off for DH and me.

Thanks.

 

[classiclincoln]

While not an attorney and without reading the document, I can't be sure, however, based on my understanding of how trusts work, you can do whatever you want. However, if you don't follow the terms of the will, you are opening up yourself to lots of problems.

If the decedent's will left proceeds to the trust, there should be a trustee and a back up trustee. If your husband is the trustee and doesn't want to do it, turn it over to the back up trustee. Then all the duties pass to that person, and based on what you said, since the trustee can dole out the money as they wish, that back up person can give the brother money as the back up trustee sees fit.

Also, if your father in law set up a Special Needs Trust, it should be followed. Those types of trusts are set up specifically to provide for disabled children without impacting any benefits.

It might be worth your while to consult an estate planning attorney. I'm in southern NJ and know a few good ones if you want.

 

[Passepartout]

Rose, I think you might be able to have the trust buy an immediate annuity that would automatically deposit the proceeds into his account. The trust can be in (dad)s name with the brother as annuitant. Not sure how long it can stay active in Dad's name in Utah, or if it matters. I hold and am trustee, and annuitant for one in my mom's name and I was told it could stay that way for 20 years after her departure.

Jim

 

[am1]

You may want to look into investing the money and having the dividends paid out. Some can be quarterly. With inflation the 30 - 35k will not be much in the years to come.

Or you could pay off the creditors so that they are off your brother in laws back.

 

[stmartinfan]

Disability (or special needs trusts) are a very complex topic, so you'll want to be sure you get good advice before you proceed. It's especially important to note that you're dealing with a "special needs trust" nor just a "trust," because the rules are very different.

An SNT allows you to shelter this money, so your bil can benefit, without jeopardizing his government benefits like Social Security disability. The government allows for SNTs because it recognizes that the disability benefits it pays provide for "basics" only, and an SNT can be a way for a family to help with some extras.

You'll want to confirm what SS benefit he gets - SSI or SSDI. They have different limits for total assets and monthly income the person can also receive. Also, if you bil gets medical assistance from the state, that can be affected. If he will give you permission, it may be easiest to get this kind of information by talking with his county caseworker/social worker, or whoever coordinates his benefits in his state.

I wasn't sure from your posting if an SNT has already been created, or if you need to do so. If you do, you'll want to have it in place before any payout of the proceeds, so that the check is made payable to the trust, not to your bil. Otherwise, it's likely he'll loose the his benefits until he can get the money into a trust, at a minimum a month. Also, if the estate funds the trust, it's then a "3rd party trust" - a trust funded for a person with someone else's money, not a "1st party trust" - money funded by the beneficiary themselves. The reason this is important is because in most states any money left in a 1st party trust should the beneficiary die goes back to the state to repay any medical assistance provided. Any remainder in a 3rd party trust can go to other heirs.

I work on a pooled trust, which is a form of SNT, and at least for ours, we can NEVER give the beneficiary of the trust any money directly. Doing so would affect the person's benefits. We can pay bills for the beneficiary, provide them a check payable to a retailer where they can purchase something we agree is eligible (and must get the final receipt), or reimburse someone for eligible purchases on the beneficiary's behalf. For example, they can't spend money on groceries, because their disability benefit is paying for that.

If there isn't an SNT already established, you might want to look into any pooled trusts in your state. The U.S. government allowed these some years ago, as a way that people with a small amount of money could still benefit from an SNT. They can only be operated by nonprofits, and only for people in the nonprofit's state. All the trust accounts use the same basic paperwork, and the funds are pooled for investment purposes. The nonprofit serves as trustee, and is responsible for tracking each beneficiary's funds, and handling any disbursements and the required reporting to government agencies, like SSI and counties.

While there's an enrollment fee and some monthly operating fees, it's usually cheaper than having a lawyer write all the trust paperwork and trust fees from banks to manage it. (And most bank trust departments won't handle accounts as small as yours.) Most pooled trusts offer some options for how the money is invested.

The nonprofit is responsible for making sure that the disbursements don't jeopardize benefits, and also can be the people who turn down requests from the beneficiary - not family members. Usually the initial trust paperwork allows the family to set limits on disbursements, in terms of timing and uses, so the trustee uses those as guidelines to help it run well. And it relieves families of the reporting required.

There are some individual state nonprofits who run pooled trusts and many chapters of The Arc in various states have them. There are also some "nonprofits" whose sole business is running pooled trusts, and some of those may be fine, but they have a different focus than a nonprofit that's doing it to serve its members with disabilities.
I'm definitely not a lawyer, so please be sure to consider this information worth only what it cost you But I wanted to add it because there is lots of advice already in this string that is what you DON"T want to do, at least as I understand it. For example, setting up an annuity in your bil's name, and having it pay him a monthly check would likely reduce his SSI benefit every month by that amount of money - essentially defeating the purpose of the funds.

 

[Rose Pink]

Thanks for the replies. We definitely need to find out what the source is of his disability income. I am just afraid any inquiries setting into motion something that will come back to bite him such as losing his benefits.

Do I go to the bank? A lawyer? What kind of lawyer? My CPA? I think I could ask questions at any of those places without starting something.

If we leave his money in Dad's trust, and then let him make withdrawals, is that a problem? It seems like the simplest answer--since the money would never be in his name. If he dies before the money is completely paid out (doubtful) at least the leftovers could still go to Dad's descendants.

StMartinFan, I am going to have to reread your post and study it. You brought up things like pooled trust that I had never heard of. Thank you.

As for trustees, my husband and his sister are co-trustees. The sister has stepped back and does nothing. She says she does not know how. And we don't trust her anyway. She just wants her share of the money and we are happy to give it to her and never have to deal with her again. That leaves my DH who is too busy to deal with this and so it is dumped in my lap. I don't want to get into family dynamics too much. But that is the way it is, either I figure it out or the money is just going to go down the drain faster than I can type this post.

I have no interest in getting involved with my BIL's creditors! The way I see it, he has only a SS income of some sort, his credit rating is zilch and he is obviously not functioning on all cylinders--very obvious to even the casual observer. Legitimate lenders or businesses are not going to extend credit to him. Which leaves only the bloodsuckers and if they get burned, they deserve it for preying on the disadvantaged. No, I do not want to pay them off or get involved with them in any way whatsoever. And even if they were legitimate and we paid them off, he'd just get in trouble again. This is a lifelong problem for him.

I don't think he has a bank account. I think he was turned down. When we went to our CU, the manager looked at something and said there are creditors monitoring to see if he opens an account and are there to swoop on it. That is why I am hoping we can get his money to him without having an account in his name.

I will look into the SNT.

Thanks again. So many more things to think about.

 

[Conan]

You need a Special Needs Trust -- anything else will disqualify him from receiving Medicaid. See a lawyer!
http://hrsa.dshs.wa.gov/LTPR/SNT.html