Special Needs Trusts and Home Ownership

Home ownership has been a cornerstone of the American dream. Yet, the ownership of a home presents challenges for persons with disabilities. As none of us knows if we might become disabled, these issues are universal in nature.

Trusts are often employed to managed and administer and protect assets for a person with a disability. Such trusts are created for a wide range of people, from a minor receiving the proceeds from a successful lawsuit or an aging parent. We call these special needs trusts.

One of the most challenging responsibilities of a trustee of a special needs trust comes with trust ownership of a home. The trustee must balance the benefits of owning a handicapped accessible or modified house for a beneficiary. Of course, even finding a home suitable for a person with physical challenges is a great challenge by itself. Most home builders do not construct homes to meet the needs of persons with physical challenges. Doorways may be too narrow for a wheelchair. Steps might be a barrier to accessing bedrooms or bathrooms. Even getting in and out of the house can be a problem.

When a trust owns a house, the trustee must rebalance the allocation of trust assets. Most consider a house to be a capital asset, and hopefully one that will increase in value. It is an asset that requires constant care. The trustee must cope with the financial pressures of maintenance. Hiring service people, managing utilities, and supervising repairs are all the Trustee’s responsibility. Of course, the trust, as owner of the house, is also responsible for real estate taxes and homeowner’s insurance.

However, a home is an illiquid asset. The housing market is not always favorable to the home seller. The trustee might be in a crunch, needing to raise funds or find a better residence for the trust beneficiary. Meanwhile, the sale or purchase of a house will always be challenging. When interest rates are high, or the economy is weak, the housing market may take a hit. Home sales can plummet making the sale of a home difficult. To the opposite, there are times when selling a home is easy but acquiring a new residence may be quite difficult because there is no inventory and stiff competition.

The trustee of a special needs trust may also have a bevy of ongoing expenses in addition to the house. The beneficiary might need personal care attendants, nursing services, tutoring, therapies, and extraordinary travel needs. Often trusts for persons with disabilities have declining balances due to the many expenses. The trustee must be cautious if there is a steadily decreasing trust cash balance and steadily increasing expenses.

In a second installment on this topic, I will explore an example of how home ownership might not be desirable for a special needs trust.

Evan J. Krame