Planning for a Disabled Family Member

Planning and providing for the needs of a disabled loved one in your care can be tricky when they are receiving government benefits. Transferring assets to them directly could disqualify them from government income.

A Special Needs Trust, or Supplemental Needs Trust, can help preserve a beneficiary's eligibility for government benefits and provide for any additional needs they might have, such as home repairs, caregivers who Medicaid/Medicare does not cover, and much more.

First, Party Special Needs Trusts use the disabled person's assets or income to protect their inheritance or any proceeds from a lawsuit awarded to them. The disabled individual can create such trust independently, though there are some drawbacks to doing so. Alternatively, third-party supplemental needs trusts use the assets of someone other than the disabled individual, who can dictate where the remaining assets will go upon the disabled individual's death.

Special Needs Trusts may be created during a grantor's lifetime (a living trust) or upon the grantor's death (a testamentary trust). Both offer different advantages.

If you are currently providing care for a child or loved one with special needs, you have likely contemplated what will happen to them when you die. Special Needs Planning is critical to afford your disabled beneficiary the greatest independence and higher quality of life.

Although you can leave assets directly to disabled individuals‚ doing so is often detrimental. This is because disabled individuals often rely on essential benefits under the Supplemental Security Income (SSI) and Medicaid programs. An inheritance would disqualify them. These public monetary benefits provide only for the bare necessities such as food‚ housing, and clothing. These limited benefits do not provide loved ones with resources to enjoy a richer quality of life.

To avoid disqualifying a disabled person from these needed benefits, consider placing assets in a “Supplemental Needs” or “Special Needs” Trust. When drafted correctly, this avoids disqualifying beneficiaries from receiving government benefits.

Here's how it generally works:

1. Creation: A special needs trust is typically established by a parent, grandparent, legal guardian, or court to benefit a disabled person. It can also be set up by the individual with a disability themselves, depending on their capacity.
2. Funding: Assets, such as money, property, or investments, are placed into the trust either during the grantor's lifetime or through their will as part of their estate plan. These assets are then managed by a trustee appointed by the grantor.
3. Trustee Management: The trustee is responsible for managing the trust assets and using them to provide for the supplemental needs of the beneficiary with a disability. Supplemental needs typically include expenses that enhance the beneficiary's quality of life beyond what government benefits cover, such as education, recreation, therapy, travel, and personal care items.
4. Government Benefits Preservation: One of the primary purposes of a special needs trust is to preserve the beneficiary's eligibility for means-tested government benefits. Because the assets in the trust are not considered to belong to the beneficiary for purposes of determining eligibility, the beneficiary can still qualify for benefits like Medicaid and SSI.
5. Discretionary Distributions: Special needs trusts are typically structured as discretionary trusts, meaning the trustee can distribute according to the beneficiary's needs. This discretion is essential to ensure that distributions from the trust do not interfere with the beneficiary's eligibility for government benefits.
6. The trustee of the Special Needs Trust cannot distribute funds directly to the disabled beneficiary. In-kind support and maintenance reduce the SSI benefit dollar-for-dollar up to a maximum of 1/3rd of the benefit. Instead, the trustee disburses funds to third parties who provide goods and services to the disabled beneficiary.
7.  First, Party Special Needs Trusts are funded with the assets or income of the disabled person. A First Party Trust is often used to safeguard benefits after a disabled individual receives an inheritance outright or is awarded proceeds from a lawsuit. The beneficiary must be under the age of sixty-five and established by a parent, guardian, or through the court. The drawback of the first-party trust is that there must be a payback provision to Medicaid. The payback provision directs that any monies remaining in the trust at the time of the beneficiary's death go to the state.
8. Third Party Supplemental Needs Trusts are funded with the assets of someone other than the disabled individual. Since the assets never belonged to the disabled individual, the grantor can direct who will inherit the remaining assets upon the disabled individual's death.

In most states a special needs trust can provide the disabled person with:

• Home Repair
• Caregivers not provided for by Medicaid/Medicare
• Medication not covered by Medicare or Medicaid
• Utilities
• Insurance premiums
• Income Tax
• Transportation (including buying a vehicle)
• Supplemental education and tutoring
• Materials and instruction for a hobby or recreational activity
• Funds for trips or vacations
• Funds for entertainment such as movies‚ shows, or ballgames.
• Goods and services that add pleasure and quality to life: e.g. computers‚ videos‚ and electronics, household goods.
• Athletic training or competitions
• Special dietary needs

Contact Will and Trust Planning Today

For personalized advice on estate planning, including strategies to minimize or avoid probate, contact Will and Trust Planning today. Our experienced estate planning attorneys can help you understand your options, draft essential documents, and create a plan that protects your assets and achieves your goals.