Special Needs Planning
Q: What is the purpose of a Special Needs Trust?
A Special Needs Trust is a trust that can supplement the needs of a special needs beneficiary while allowing the beneficiary to maintain his or her governmental benefits, including Supplemental Security Income (SSI), Social Security and Medicaid. With medical advancements, persons with disabilities are living longer and public benefits are often necessary, yet there is no guarantee that public benefits will provide adequate resources over the disabled person’s lifetime, or that existing public agencies will continue to provide acceptable services and advocacy over a disabled person’s lifetime.
If the special needs trust is established by you or someone other than the disabled person and the disabled person does not have the legal right to demand trust assets, the trust is not considered a countable resource for purposes of government benefits. Therefore, the special needs trust beneficiary can continue to receive benefits even though he or she is a trust beneficiary. The trust will give the trustee the discretion to make distributions to the beneficiary to the extent possible without reducing benefits, and trust assets are available if the beneficiary no longer qualifies for governmental assistance or that assistance is no longer available.
If the trust is established on the beneficiary’s behalf pursuant to court order, for example as part of a personal injury settlement, the trust will not impact the beneficiary’s eligibility, but it may need to include a payback provision that reimburses the state for its assistance before trust assets pass to the trust’s other beneficiaries.
Common savings vehicles for children, like Uniform Transfer to Minor Acts (UTMA) accounts, typical trusts, or designating a retirement plan, insurance policy or annuity directly to an SSI or Medicaid recipient will cause a reduction or elimination of public benefits. Recognizing this, some parents make the difficult decision to disinherit their special needs children, but this severe action is unnecessary.
Q: When should a Special Needs Trust be established?
A Supplemental Needs Trust can be established at any time before the beneficiary’s 65th birthday. However, it is very common to create a Supplemental Needs Trust early in a child’s life as a long term means for holding assets to benefit the disabled family member. This is particularly true of parents who wish to leave funds for a child’s benefit after the parents’ death. The Supplemental Needs Trust is the estate-planning tool of choice for those parents. As a part of Estate Planning, the costs of the creation of the Trust are tax deductible.
Additionally, the disabled or chronically ill individual may at some time during his or her lifetime come into funds from third party sources, such as a personal injury settlement or a bequest from relatives or friends, Social Security back payments, insurance proceeds, or the like and they can immediately be transferred to the Special Needs Trust without affecting the individual’s eligibility for government benefits.
Q: Who can establish a Special Needs Trust?
A parent, grandparent or guardian is authorized to establish a Special Needs Trust. In addition, the law does not forbid siblings and other third parties from setting up a Special Needs Trust.
A family or person that wishes to benefit an individual under a disability or chronic illness will be well advised to utilize the services of an attorney that specializes in Special Needs issues. A poorly written Trust can cause a loss of benefits, a loss of savings, or other financial and legal hardships for the Beneficiary or the Trustee, some quite severe, including civil litigation or criminal prosecution in some extraordinary circumstances.
Q: Our family is wealthy, do we still need to create a Special Needs Trust?
Yes because other types of Spendthrift or Family Trusts are not appropriate for Special Needs persons because they do not address the specific needs of the disabled beneficiary or his future lifestyle. Even in situations where a family may have significant resources to help a disabled family member a Supplemental Needs Trust should be established to address these issues. Monies placed in the Trust remain non-countable assets and allow the beneficiary to qualify for available benefits and programs. You should not sacrifice services that might be available to your relative now and in the future.
In addition, Trust funds are not subject to creditors or seizure. Therefore, if the disabled beneficiary should ever be sued in a personal injury or other type of lawsuit, the beneficiary is not a “deep pocket” because monies placed in the Trust are not subject to a judgment.
The Wealth Solutions Counsel is a practice group of Keith, Miller, Butler, Schneider, and Pawlik, PLLC. The Wealth Solutions Counsel assists clients with Estate Planning, Wills and Trusts, Wealth Preservation, Asset Protection, Planning for Children, Estate Taxes, Tax Law, Tax Preparation, Business Law, Business Succession Planning, Special Needs, and Probate and Estate Adminisration, in Rogers, Fayetteville, Bentonville, and Springdale, and in both Benton County and Washington County, Arkansas.
