Court Bonds

Co-ops, Trusts and Special Needs?


Families of children with special needs have extra to worry about in life—and estate planning. What happens, for example, if a family intends to leave a co-op apartment to an adult child with special needs? Hmm! Though possible, it’s not a guarantee. New York estate planning specialists weigh in.


Dependent on The Co-op Board

Though technically it is possible to transfer the shares of a co-op to an irrevocable trust in the name of children, including those with special needs, co-op boards have “enormous latitude” when it comes to approving the request. In other words, co-ops can deny the transfer of shares to a trust. As The New York Times shares:


In most cases, a co-op board has enormous latitude to approve or deny the transfer of the shares and the proprietary lease. And if they deny it, the apartment gets sold and the children get the equity,” said Mindy Stern, a partner in the Manhattan law firm SSRG….Just because the will says Im leaving it to my kids,that doesnt give them the absolute right to acquire the shares or live there.”In some cases, the proprietary lease says that a board wont unreasonably withhold consent to transfer the apartment to a financially responsible family member, but few if any extend that concept to include trusts,” Ms. Stern said.


When families have the intention to transfer property, condos may be a better option then co-ops, especially if they are purchased specifically through a special needs trust. As experts point out: “Unlike co-ops, condos generally allow transfers within estate planning, without requiring approval.” Of course it’s a good idea to involve an estate and trust attorney in reviewing the building’s transfer rules before making the purchase, especially if it is intended for heirs, including those with special needs. As a last resort to ensuring heirs in fact benefit from a property purchase down the road, experts explain: “You could wait to have the situation resolved after your death, leaving clear directives to the executor of your estate about what to do should the board reject a request to transfer the property into a trust.… But that leaves everyone in a precarious position, with years of uncertainty ahead.”


Planning Ahead: Establishing a Trust

While it is important for every family to plan ahead about how assets can best be allocated for future generations, proactive estate planning is especially critical when there is concern for individuals with special needs. For example, eligibility for necessary government aid could be jeopardized if a loved one with special needs is directly gifted with assets. Accordingly, the National Law Review recommends establishing a Special Needs Trust for a beneficiary with a disability. This type of trust is also referred to as a Supplemental Needs Trust or SNT. As experts explain:


This specialized trust allows assets that family members and friends contribute to it to pay for goods or services that are in the beneficiary’s best interest, while also maintaining the beneficiary’s eligibility for means-tested government assistance programs. In planning for an individual with special needs, money is not everything — there may be residences or programs that require the person with special needs to be eligible for benefits such as Medicaid or SSI and do not accept private payment. A SNT allows the beneficiary to have the best of both worlds.


The National Law Review  also points out that it is especially important to take good care when appointing a trustee to serve as the fiduciary of a SNT and offers this guidance:


In selecting your trustee, the most important qualifications are loyalty and competency in administering the trust. The trustee is the quarterback of the plan who can hire financial advisors, attorneys, accountants, bookkeepers, social workers, and care managers. The trustee can delegate, but must oversee everything. Corporate trustees are an option if the trust is large enough. Look for a bank with special needs experience and a willingness to administer an SNT. If you use a corporate trustee, consider adding an individual family member or friend as a co-trustee to work with the corporate trustee who has expertise in SNTs.


It is good practice—and often required—for the trustee to obtain a trustee bond to protect the interests of the beneficiary in accordance with the law. As an expert with a long history in fiduciary bonds, Colonial Surety makes it easy for families (and their lawyers) to obtain a trustee bond. Licensed in all 50 states and US Territories, Colonial simplifies the bonding process for everyone. To obtain a trustee bond, just get a quote online, fill out the information, and enter a payment method. Print or e-file your own bond. It’s so simple that it can even be done before leaving the law office.


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