Business Succession Planning
Special Needs Planning
Personal politics aside, as a country, we have decided that we will not allow our elderly and disabled to live on the streets. We recognize the value of their lives, and we decided to create programs to assist these classes of individuals to allow them to live with dignity. These programs are known as public benefits.
Public benefits are “means” tested programs, meaning that the individual who receives these benefits has income and resources that are inadequate to meet his basic needs. People who satisfy this requirement can receive a host of benefits, including a monthly Supplemental Security Income payment, Medicaid, food stamps, and subsidized housing (such as section 8 housing). These benefits are not extensive by any means, nor are they supposed to be. They are supposed to provide the child with the minimum that he needs for his care.
The challenge arises when a family has a disabled child who probably will never be able to support himself. The family would like to be able to provide financially for this child, but any money the family gives the child will disqualify the child from his public benefits. This can leave the child without access to medical care, housing, or other programs that the child uses. Short of never giving the child money and disinheriting him altogether, what can a family do to give this child comfort beyond the minimum standard of living provided by public benefits?
Fortunately, Medicaid’s drafters were not heartless. They want to encourage families to assist their loved ones without putting their loved ones at risk for losing their benefits for a short term gain. Thus, the Medicaid drafters created special need trusts, a type of trust that can hold both income and assets for the benefit of the disabled child. As long as the trust is used to supplement and not supplant the child’s benefits, Medicaid will pretend that the items in the trust do not exist for purposes of Medicaid eligibility.
Special needs trusts can be created by a third party for the benefit of the individual, or they can be created with the individual’s funds. These trusts can be created as a stand-alone trust or as a testamentary trust (created in someone’s will). They can be individual trusts or part of a larger “pooled” trust account. The source of the funds for the trust help determines the type of trust created as well as who can create the trust.
The rules governing the trust and distributions from the trust are particular. A non-compliant trust can disqualify someone from their public benefits retroactively. In other words, if the trust is not properly drafted, a person can lose their benefits going back in time until the date the trust became effective.