Providing for a Special Needs Beneficiary


Richard Morgan, Morgan and DiSalvo.

This topic is on special needs beneficiaries. So if you have a close family member that you would like to benefit at your passing and they have an inability to earn a living, they’re disabled in some manner, the question is how do we provide assets to go to them? So this is not talking about the disabled individual’s own assets. These are your assets that you want to provide so that they benefit from them. How do you do that?

Well, number one, you do not give those assets to that beneficiary outright. You do not put them in their name. There’s nothing good coming from that other than simplicity. But there’s a lot of negative and a lot of bad things are going to be happening. Don’t do it. The key here is government benefits. If this person cannot, doesn’t have the ability to earn a living and take care of themselves, might have significant medical expenses, other needs, then we would like to take advantage of what the government provides us. And we call those means-tested benefits.

You have to be poor enough on paper so the government then comes in and provides this low level, or these basic parts of life to take care of you, the medical issues, the assistance, whatever it is you need, transportation, those kinds of things to take care of your life. So how do you give someone the ability to benefit from assets, but you don’t give it to them outright? The way you do it is you put it into some type of special needs or supplemental needs trust. There are several different kinds.

Number one, you’d have your own trust, and that would be normally called a supplemental needs trust. Your assets go into this trust on behalf of that beneficiary. You appoint a trustee. And it has certain provisions. It says that the trustee has full discretion to make distributions to or on behalf of the beneficiary, usually it will be on behalf of the beneficiary, and that the funds cannot be used to pay for things the government would have provided with these means-tested benefits.

There are exceptions. So, for example, you can provide housing, but there’s certain rules about it. So you just need to be very careful about how you do it. And that will be a trustee administration issue. But the trust itself, full discretion, has some limitations on it.

And then what we like to do is make the trust flexible. Because we don’t know what the situation will be with the laws. We don’t know what the situation will be with your beneficiary later. So we put power in the trustee so that, number one, if the the beneficiary would not have received any means-tested benefits without considering the trust benefits, they just have too much, whatever the rules are, then we don’t need these extra restrictions so we can remove the restrictions. Number two, it may be the government benefits are so minuscule compared to the hassle and the cost to get them, it isn’t worth it. So we give the trustee some flexibility to either use those rules or not when it doesn’t make any sense.

So that’s creating your own trust terms in your own estate planning documents. That’s for a decent amount of wealth. But what if it’s a smaller amount that you’re providing for this person? It may not be worthwhile having an own separate trustee with your own separate trust. In that case you can go to what’s called a community pooled trust. There are different nonprofit organizations that have these trusts set up. Your beneficiary will have a separate account. And you’ll have… They will be the trustee of that account, and then you’ll have someone normally that will kind of assist them, who knows your beneficiary. Either a sibling or someone else that can kind of help them out. And then they deal with all of the government regulations and all those kinds of rules.

Third, and this is for really small amounts. There’s something now called the Able Act. Which I think the maximum you can have in there is a $100,000 or so. Talking about smaller numbers. But you’re now, as of a law that was only created a few years ago, we can now create an account for that individual and put in relatively small amounts of money, and it won’t destroy their access to these benefits.

Richard Morgan, Morgan and DiSalvo.

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