What power does a Trustee in a Will have to limit income to beneficiary?

Full question:

THE WILL states that Virginia is to get 1/4 of all of the residuary estate which is ($1,760,457.54) Virginia's share was ($440,114.38) Second Codicil (Article IV 4.1 (c-1) States that the trustee is to provide for reasonable support, apportioning their share of the trust funds so that it will provide them with the standard of living to which they were accustomed prior to my death. However, the trustee, in his sole and unrestricted discretion, shall withhold distribution of trust funds to my son and/or daughter IF, in the opinion of my trustee, the funds are being squandered, wasted, misappropriated, or used to be the detriment of their well-being. On (07/29/2008) Virginia did submit her cost of living $3,009.00 per. month. and was denied. (3) The trustee states that he is approving $2894.00 per. month of the $3,009 However he deducted $1,223.00 she is receiving from social security, leaving a total of $1671.00 per. month for her cost of living CAN HE DO THIS

• Category: Wills and Estates
• Subcategory: Executors and Administrators
• Date: 04/07/2025
• State: Mississippi

Answer:

Typically, when a Will creates a trust for the benefit of another, the terms of the trust determine the powers granted to a trustee. The power to provide for reasonable support, apportioning their share of the trust funds so that it will provide them with the standard of living to which they were accustomed if often one of those powers.

It is not clear from your question what type of trust was created. However, the following information about special needs trusts may be beneficial to you:

Supplemental needs trusts (also known as "special needs" trusts) allow a disabled beneficiary to receive gifts, lawsuit settlements, or other funds and yet not lose her eligibility for certain government programs. Such trusts are drafted so that the funds will not be considered to belong to the beneficiary in determining her eligibility for public benefits. As their name implies, supplemental needs trusts are designed not to provide basic support, but instead to pay for comforts and luxuries that could not be paid for by public assistance funds. These trusts typically pay for things like education, recreation, counseling, and medical attention beyond the simple necessities of life. (However, the trustee can use trust funds for food, clothing and shelter, if the trust provides him with such discretion, if the trustee decides doing so is in the beneficiary's best interest despite a possible loss or reduction in public assistance.)

Very often, supplemental needs trusts are created by a parent or other family member for a disabled child (even though the child may be an adult by the time the trust is created or funded). Such trusts also may be set up in a will as a way for an individual to leave assets to a disabled relative. In addition, the disabled individual can often create the trust himself, depending on the program for which he or she seeks benefits. These "self-settled" trusts are frequently established by individuals who become disabled as the result of an accident or medical malpractice and later receive the proceeds of a personal injury award or settlement.

Each public benefits program has restrictions that the supplemental needs trust must comply with in order not to jeopardize the beneficiary's continued eligibility for public benefits. Both Medicaid and SSI are quite restrictive, making it difficult for a beneficiary to create a trust for his or her own benefit and still retain eligibility for Medicaid benefits. But both programs allow two "safe harbors" permitting the creation of supplemental needs trusts with a beneficiary's own money if the trust meets certain requirements.

The first of these is called a "payback" or "(d)(4)(A)" trust, referring to the authorizing statute. "Payback" trusts are created with the assets of a disabled individual under age 65 and are established by his or her parent, grandparent or legal guardian or by a court. They also must provide that at the beneficiary's death any remaining trust funds will first be used to reimburse the state for Medicaid paid on the beneficiary's behalf.

Medicaid and SSI law also permits "(d)(4)(C)" or "pooled trusts." Such trusts pool the resources of many disabled beneficiaries, and those resources are managed by a non-profit association. Unlike individual disability trusts, which may be created only for those under age 65, pooled trusts may be for beneficiaries of any age and may be created by the beneficiary herself. In addition, at the beneficiary's death the state does not have to be repaid for its Medicaid expenses on her behalf as long as the funds are retained in the trust for the benefit of other disabled beneficiaries. Although a pooled trust is an option for a disabled individual over age 65 who is receiving Medicaid or SSI, those over age 65 who make transfers to the trust will incur a transfer penalty. (See Medicaid: The Transfer Penalty.)

Income paid from a supplemental needs trust to a beneficiary is another issue, particularly with regard to SSI benefits. In the case of SSI, the trust beneficiary would lose a dollar of SSI benefits for every dollar paid to him directly. In addition, payments by the trust to the beneficiary for food, clothing or housing are considered "in kind" income and, again, the SSI benefit will be cut by one dollar for every dollar of value of such "in kind" income. Many attorneys draft the trusts to limit the trustee's discretion to make such payments.