Special Needs Planning
As part of the estate planning process, it’s important to consider how best to provide for children or other family members with special needs or disabilities. Receiving an inheritance directly can often disqualify such a beneficiary, at least temporarily, from receiving public, means-tested benefits, such as Medicaid.
Fortunately, a “supplemental needs trust,” sometimes referred to as an “SNT,” can be used to leave an inheritance to a special needs beneficiary without risking the beneficiary’s eligibility for any public, means-tested benefits upon which they may depend for medical care, housing, or other support. SNTs can provide a means to substantially improve the special needs beneficiary’s quality of life by supplementing, rather than replacing, any public benefits that the beneficiary may need to apply for or may already be receiving.
Examples of means-tested public benefits include a monthly Supplemental Security Income payment, Medicaid, food stamps, or subsidized housing (such as Section 8 housing). Given how valuable these means-tested public benefits are to those who can’t support themselves, it is extremely important that well-meaning family members be extremely careful not to put those benefits at risk by making gifts or transferring wealth directly to the person receiving the means-tested public benefits.
How Assets Pass After the Death of the Owner
The good news is that there are ways for families to provide financially for their special needs loved ones without putting those loved ones at risk of losing their public benefits.
A supplemental needs trust (sometime erroneously referred to as a “special needs trust”) is a unique estate planning instrument that can hold income and assets for the benefit of a special needs person, such as a disabled child. A supplemental needs trust can be either revocable (changeable by the person who made the trust) or irrevocable (not changeable by that person). As long as the trust is properly structured and is used to supplement and not supplant the public benefits being provided, programs like Medicaid are generally prohibited from considering the property in the trust for purposes of eligibility-testing.
The source of the funds that will go into the trust determines the type of supplemental needs trust created. Different types of supplemental needs trusts include:
- Third-party supplemental needs trusts, which are funded using assets contributed by a third party (someone other than the special needs person)
- First-party supplemental needs trusts (more often referred to as special needs trusts), which are funded by the special needs person, using that person’s own income and assets
- Testamentary supplemental needs trusts, which are created by someone’s Will after that person has died
- Pooled supplemental needs trusts, which are part of a larger, “pooled” trust account with many, often unrelated beneficiaries
The laws and regulations that govern the creation and administration of supplemental needs trust are complex. An improperly drafted supplemental needs trust, or one that is administered improperly, can cause the intended beneficiary to lose valuable public benefits. The attorneys at Morgan & DiSalvo, P.C. can help families with loved ones with special needs plan for their care and support while preserving their eligibility for the means-tested public benefits on which they depend to live safe and satisfying lives. Please call us at (678) 720-0750 to schedule a complimentary estate planning consultation.
