DECEMBER 6, 2010 VOLUME 17 NUMBER 37
A client’s question:
My brother has a special needs trust, and I am the trustee. He lives in his condo and gets services from AHCCCS and ALTCS. Can the trust pay his property taxes?
Interesting question. The answer isn’t as easy or straightforward as it ought to be. Let’s start with the simple (but not completely accurate) answer, and then explain some of the limitations and qualifications.
Unless the trust language prohibits payment of property taxes (and sometimes the trust does prohibit such payments), they can be paid from the trust. There may be consequences he will have to deal with, and there may be some circumstances in which it is not permitted, but generally it can be done.
There are a number of questions that will affect the answer:
- Is the trust a “self-settled” or “third-party” trust? In other words, was it set up to handle your brother’s money (perhaps from a personal injury settlement, for instance) or was it created by a family member and funded with their own money? If the former, the rules will probably be somewhat stricter. If the latter, there will be no problem with paying the taxes (again assuming the trust language permits it), though there may be some reduction in public benefits (especially Supplemental Security Income).
- Does the trust own the condo? If not, does it belong to your brother, or to some other family member? It may be a little easier to pay the taxes if the trust owns the property. The most difficult problems will arise if title is in a third person’s name, with your brother not owning any interest.
- Do other people live with him? If so (at least in Arizona) it may be a little more complicated, though it may not. In some situations the trust may only be able to pay a proportional share of the property taxes. In other words, if he has a roommate it might only be possible to pay half the property tax bill.
- Is he on AHCCCS or ALTCS? If the former, the rules are likely to be a little bit easier. If the latter, the payments might be treated more strictly. (If your brother does not live in Arizona, this distinction will not make any sense — AHCCCS and ALTCS are the Arizona programs for Medicaid and the long-term care component of Medicaid, respectively. Other states not only do not use the same acronyms, they also do not necessarily make the same distinctions between programs). If your brother is on ALTCS but receiving most of his services from the mental health or developmental disabilities program, the ultimate answer may be different yet again.
- Is he receiving Supplemental Security Income (SSI) payments? If so it is probably going to be much easier to pay the property taxes.
You can see that the question is getting more complex as we go along. It is an unfortunate reality of the public benefits arena — the rules are complicated and often draconian.
Let’s assume that we can get past the threshold question, and can determine that it is permissible to pay the property taxes on your brother’s condo. That immediately raises a couple of related questions:
- What is the best way to do it? Two payments each year, or one payment? Most people pay their Arizona property taxes in two equal installments. One is due in October and the other in April. There is an alternative, however, and it is usually attractive for special needs trusts: you can make both halves of the tax payment at once, without interest, provided that you do so by December 31. In other words, no payment in October, a full payment in December, and then no payment in April. Why do it this way? Because paying the taxes might reduce your brother’s SSI payment for each month in which a payment is made — so it makes sense to have that only happen once a year.
- What about other payments, like the homeowner’s association dues, and the insurance? Those two payments are treated differently than property taxes. First, though, look at the trust document. Does it permit payment of household expenses? If so, then public benefits rules do not prohibit payment of HOA and insurance bills — except that the HOA dues might be a problem to the extent that they include water, garbage pickup or other utilities, and the insurance may be a problem if it is required by a mortgage lender.
- What about utilities? Does that mean they can’t be paid? Once again, look first at the trust document. Assuming it permits these payments, you can then consider the public benefits rules. Generally speaking they may allow payment of utilities, but with a reduction in SSI payments. Some payments may be prohibited by ALTCS rules. The utilities that cause particular problems are water, gas, electricity, and garbage pickup. No problem for internet, telephone, newspaper delivery, and cable subscriptions.
- What about home improvements and repairs? Generally speaking they are alright — though if there are others living with your brother there may be issues for some kinds of payments. Talk to us about the details (or, if your brother does not live in Arizona, consult with a lawyer familiar with special needs trusts in his state).
Exhausted? So are we. These rules are too complicated and the repercussions to serious — for that we are sorry. We can help navigate them for Arizona benefits recipients.
Where can I get more information? Good question. If you and your brother do not live in Arizona, you might want to talk with an attorney familiar with the area. Start with the Special Needs Alliance — it includes about 120 lawyers across the country, each of whom spends a considerable amount of time on special needs trusts and public benefits issues.
There is also a really good handbook available for trustees of special needs trusts. It is offered by the Special Needs Alliance, and the price is right — it is free and downloadable directly from the SNA website. If you prefer, you can get a beautifully printed version mailed to you. There are also a number of books on the topic — we favor one called “Managing a Special Needs Trust: A Guide for Trustees“.
Good luck. It isn’t always easy to be trustee of a special needs trust, and we appreciate that the challenges are sometimes legal, sometimes medical, sometimes familial.