CAN A TRADITIONAL SUPPORT TRUST BE REFORMED INTO A SPECIAL NEEDS TRUST?

This question arises with some regularity. Parents, grandparents, or other benefactors sometimes establish traditional support trusts for the benefit of a child/grandchild/etc. Sometimes when the trust was created the attorney/draftsman was not informed of the disabling condition of the beneficiary and, thus, did not know to prepare a Special Needs Trust ("SNT") in order to protect public benefits such as Medicaid and/or SSI ("Supplemental Security Income").

Unfortunately, on other occasions the attorney may not have known how to prepare a suitable special needs trust and instead prepared a more or less traditional support trust. In some cases, a traditional support trust established by a parent/grandparent or other "third party" may be suitable, even for a disabled person, if the trust is large enough to fully support the cost of care of the disabled person, or if the trust was established after August 10, 1993 (the effective date of OBRA – the Omnibus Budget Reconciliation Act), and the trust does not contain any compulsory distribution provisions.

In some cases, a traditional support trust works quite well for a non-disabled person until the beneficiary falls victim to an accident or disease resulting in a disabling condition triggering the need for Medicaid or other public benefits.

Sometimes a traditional support trust can be modified or reformed and changed from a support trust to a special needs trust. This may be accomplished in one of several ways. The document may contain a provision allowing the Trustee to convert the trust from a support trust to a special needs trust if any beneficiary is injured or otherwise would qualify for public benefits. Or the trust may authorize a Trustee Advisor or a Trust Protector to modify or amend the trust, thus converting it into an SNT. Finally, the Trustee may seek a reformation via judicial proceedings asking a judge to allow and order a modification of the trust based upon a change of condition of the beneficiary necessitating the creation of an SNT, or based upon an original error in drafting, or simply ignorance of new SNT options that have become available in more recent years.

Although it would be an overstatement to assume that any trust can be reformed, there is substantial precedent to allow a trust to be reformed under certain conditions. A careful review of the trust document and circumstances surrounding its creation (i.e., condition of the beneficiary) may lead to the conclusion that a successful reformation may be accomplished, thus preserving the trust assets for the long term benefit of the disabled beneficiary.

Curtis J. Shacklett, Esq.
Barber & Bartz, P.C.
525 S. Main St., Ste. 800
Tulsa, OK 74103-4511
Telephone: (918) 599-7755
Facsimile: (918) 599-7756
Email: cshacklett@barberbartz.com
Website: www.barberbartz.com