Special Needs Trust – Inheritance Without Harm

Special Needs Trust – Inheritance Without Harm

A Special Needs Trust is Required When a Simple Inheritance Can Do More Harm Than Good

I recently had a client walk into my office who had just learned he was receiving a large inheritance from his father.  He was extremely worried and upset about this.  My client was disabled, and was receiving Medicaid health care benefits as well as Supplemental Security Income (SSI) for food and shelter.  He was concerned he would lose his benefits.  He was right to be worried about this as too much money can cause you to lose these benefits.  He couldn’t find private health insurance because of his disabilities, and he needed his benefits for food and shelter because he couldn’t work.  How could this have been avoided?

A Special Needs Trust Solves the Problem

For those who have a child or  loved ones with mental or physical disabilities, providing that loved one with a certain quality of life while you are alive and after you are gone can be complicated.  It can be especially complicated when your loved one depends on government programs such as Medicaid and SSI to provide their lifetime care.  A Special Needs Trust (sometimes called a Supplemental Needs Trust) is the only legal entity that can protect your loved one’s government benefits which provide for their lifetime care, and still provide them with the quality of life they deserve.

Why Do I Need a Special Needs Trust and How Do I Create One?

A Special Needs Trust is a legal entity that protects someone’s ability to receive “means tested” government benefits such as Medicaid and SSI.  A “means tested” government program means that the your eligibility is based on how much money you have.  Medicaid provides health care benefits for those that qualify, whereas SSI provides a small monthly income for food and shelter.

Medicaid and SSI provide lifetime care for a loved one with special needs, but due to the limited benefits offered by each program, they do not provide a good quality of life.  In order to ensure a good quality of life, many family members will want to leave assets that can be used to ensure a comfortable quality of life.  However, especially with Medicaid benefits, it is critically important to ensure a loved one remains qualified for these programs, and an inheritance is likely to disqualify them for benefits.

A Special Needs Trust can ensure that lifetime care from government programs is maintained, and can provide a good quality of life derived from assets left in the trust to be used for a loved one with special needs.  A Special Needs Trust can take on many forms, but it is used to “supplement” needs not provided for by government programs, but protects those benefits by not using the trust proceeds to “supplant” those benefits.  A Special Needs Trust can be established with the help of an attorney who specializes in this type of planning.

How do I Fund a Special Needs Trust?

The Special Needs Trust should be funded when it is created so that your loved one can have their special needs met without compromising government benefits eligibility, and without interruption in case something happens to you.  But how do you fund it, and how much money should it be funded with?

The answer of how much it should be funded with depends on what quality of life you want to leave your loved one.  Also, you should think about not just funding “needs”, but “wants and wishes” as well.

Your Special Needs Trust can be funded with real estate, non-qualified investments such as bank accounts and stocks and bonds, qualified assets such as IRAs and 401(k)s, and life insurance proceeds.  Although real estate can be a good trust investment as it can be sold for cash upon your death, the value of the asset is subject to the market at the time, and it may be tough to sell for a period of time after it goes on the market.  There are risks with leaving non-qualified investments in the trust as well since you never know if you saved enough to cover your loved one’s lifetime, and their values can fluctuate depending on the market.  Qualified retirement accounts may not be a good asset to leave to a trust either, as taxes are incurred at the time of the distribution to the trust.  For these reasons, many believe life insurance is a must consider option for funding a Special Needs Trust.

How Does a Guardianship Fit In?

When children are minors, their parents are considered their natural and legal guardians.  But what happens if they pass away?  What happens after they turn 18?   A court appointed Guardianship answers these questions.  A Guardianship gives someone else the ability to make decisions for someone’s personal and physical well being.  A parent can petition the court to be appointed a guardian over adult children after they turn 18 years old, and can also appoint someone to be appointed the guardian of their children through their Last Will and Testament.

Planning Ahead is Critical

For anyone with a child or loved one with special needs, planning ahead with solid estate and financial planning is an absolute must.  Not having a plan in place is irresponsible, and can have devastating effects on a special needs child’s future.  Additionally, picking the right estate planning attorney with experience planning for families and individuals with special needs is important.  With proper planning, you can ensure a good quality of life for you and your family.

Written by Brian G. Quinn, Attorney with Quinn Estate & Elder Law

2018-11-26T04:55:07+00:00