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Disabled Beneficiary Graduates; Trust Terminated

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Trust beneficiary graduates

It’s not too often that a special needs trust beneficiary “graduates” from their disability. But a heartwarming Michigan case gave us a chance to reflect on the possibility this week.

A little background: a special needs trust can be established for a beneficiary who is “disabled” by Social Security standards. It can even contain funds — like an inheritance, or a personal injury settlement — that belonged to the beneficiary. But then the trust (called a “self-settled” special needs trust) must be irrevocable. So what happens if the beneficiary graduates from their disability? Does the trust continue?

Some special needs trusts do not contain the beneficiary’s money. A parent, for example, might set up a “third-party” special needs trust. The parent can put their own money into the trust. Then it doesn’t have to be irrevocable — at least until the parent’s death.

But what happens when a disabled beneficiary graduates — that is, recovers from their disability? It’s not terribly common, but it does happen. Then what happens to the special needs trust?

An injury at 16 starts our story

Talonda Mulgrew was sixteen years old when she suffered a traumatic brain injury in a car crash. Her family mobilized to provide care. Ms. Mulgrew qualified for Medicaid in her state (Michigan), and Medicaid even paid her mother and other family members as caretakers.

In 2010, after settling a personal injury claim arising from the auto accident, her mother set up a self-settled special needs trust. She added personal injury proceeds, plus some of the family money that had been saved from government assistance.

But then, remarkably, Ms. Mulgrew began to improve. She worked hard. She got an important job (she’s Director of Operations for Habitat for Humanity Capital Region in Lansing!). And she got married. This beneficiary graduated from her disability — and also from high school and then college.

At age 34, Ms. Mulgrew asked the Michigan courts to terminate her special needs trust. That would mean paying a $44,000 claim to Michigan Medicaid. Then the rest of the trust — including Ms. Mulgrew’s home — could be given to her outright.

Why not terminate the trust?

We do need to point one concern. Terminating a self-settled special needs trust almost always means paying back the state Medicaid agency. That can mean termination is unattractive in many cases.

But in Ms. Mulgrew’s case, Medicaid had “only” paid $44,000 in benefits. That could mean that freeing up the money could give her considerable autonomy and self-determination. So she decided she’d like to be a beneficiary who graduates — that is, a former beneficiary.

Her mother (the trustee of the trust) objected. She argued that the trust still benefitted Ms. Mulgrew. It provided management of the funds, and protection from bad decisions. Besides, the trust was for Ms. Mulgrew’s sole benefit — handing the proceeds over to her could benefit others (like her husband, for example). And if she ever needed Medicaid again, she’d be ready.

The Michigan probate judge agreed with Ms. Mulgrew. He noted the remarkable story of a trust beneficiary’s graduation, and directed that the trust’s assets be given to Ms. Mulgrew.

The Michigan Court of Appeals agrees

The Michigan Court of Appeals applauded Ms. Mulgrew for being a beneficiary graduate. They noted that the circumstances had changed since the trust was established, and it was no longer necessary.

The reported decision does seem to get a little confused about terminology. They describe Ms. Mulgrew’s mother as the “settlor” of the special needs trust. But under tax and public benefits law, Ms. Mulgrew was actually the settlor and “grantor” of the trust, since it was composed of her money. Her mother was simply acting on her behalf. But ultimately, the distinction made no difference to the appellate judges. Ms. Mulgrew, that rare beneficiary who graduates, was able to terminate her trust. In re Special Needs Trust for Moss, July 14, 2022.

Would an Arizona case end up the same way?

It’s rare that a special needs trust beneficiary graduates — but it’s not unheard of. We have closed out self-settled special needs trusts, and there’s no doubt that it can be done under Arizona law, as well. Of course, there is the problem of having to repay Medicaid (AHCCCS, in Arizona) for care they’ve provided, but in a case like Ms. Mulgrew’s we’d expect to be able to do the same thing.

Not every beneficiary graduates from their special needs trust — even when their condition improves. One common work-around, for example, is to keep the trust going, but possibly change the trustee. Or a beneficiary might forego Medicaid coverage; the trust might then be more flexible.

Ms. Mulgrew’s trust was a self-settled special needs trust. The rules governing a third-party special needs trust might be very different. The first concern in such a case is to read the trust’s terms. Termination might be easy — or impossible.

But we do love to see the “problem.” A special needs trust beneficiary who graduates is a wonderful problem to work on! Congratulations to Ms. Mulgrew, and all others in her position.

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Robert B. Fleming


Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman


Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson


Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

Famous people's wills

Matthew M. Mansour


Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.