Special Needs Planning

•     What is a supplemental needs trust?    

Supplemental needs trusts (also known as "special needs" trusts) are drafted so that the funds will not be considered to belong to the beneficiary in determining his or her eligibility for public benefits, such as DHS Medical Assistance benefits, Supplemental Security Income (SSI), or public housing.  These trusts are designed not to provide basic support, but instead to pay for comforts and luxuries that could not be paid for by public assistance funds, such as education, recreation, counseling, and medical attention beyond what is required simply to maintain an individual. 

•     Who can create a supplemental needs trust? 

Very often supplemental needs trusts are created by a parent or other family member for a disabled child (even though the child may be an adult by the time the trust is created or funded).  But the disabled individual can often create the trust himself or herself, depending on the program for which he or she seeks benefits.  The DHS Medical Assistance benefits is the most restrictive program in this regard, making it difficult for a beneficiary to create a trust for his or her own benefit.  But even DHS Medical Assistance benefits has a "safe harbor" allowing for the creation of a supplemental needs trust with a beneficiary's own money if the trust meets certain requirements.  This is sometimes called a "(d)(4)(A)" trust, referring the authorizing statute. 

•     Must the supplemental trust be irrevocable? 

Yes, if it is created and funded by the person seeking public benefits himself or herself.  No, if it is created and funded by someone else for the benefit of person receiving or seeking public benefits. 

•     Are there restrictions on how the funds in the supplemental needs trust may be spent?   

Yes and no.  Yes, each public benefits program has restrictions that must be complied with in order not to jeopardize the beneficiaries continued eligibility for public benefits. 

For instance, the beneficiary would lose a dollar of SSI benefits for every dollar paid to him or her directly.  In addition, payments by the trust for food, clothing or housing for the beneficiary are considered "in kind" income and, again, the SSI benefit will be cut one dollar for every dollar of value of such "in kind" income.  Some attorneys draft the trusts to limit the trustee's discretion to make such payments.  Others do not limit the trustee's discretion, but instead counsel the trustee on how the trust funds may be spent, permitting more flexibility for unforeseen events or changes in circumstances in the future.  The difference has to do with philosophy, the situation of the client, and the amount of money in the trust. 

Five Planning Pointers for Parents with Disabled Children 

1.         Buy enough life insurance.  A parent is irreplaceable.  But someone will have to fill in.  It may be siblings or other relatives.  But in all likelihood, that family will have to pay for at least some services the parent or parents had provided when able.  If the estate is not large enough for this purpose, it can be made large enough through life insurance proceeds.  Premiums for second-to-die insurance (which pays off only when the second of two parents passes away) can be surprisingly low. 

2.         Set up a trust.  Any funds left for a disabled child, whether from an estate or the proceeds of a life insurance policy, should be held in trust for his or her benefit.  Leaving money for anyone with a disability jeopardizes public benefits.  Many people with disabilities cannot manage funds – especially large amounts.  Some families disinherit disabled children, relying on their siblings to care for them.  This approach is fraught with potential problems.  Siblings can be sued, get divorced, disagree on their responsibilities, run off with the funds. It can also cause tax problems for siblings.  The best approach is a trust fund set aside for the disabled child. 

3.         Will/appointment of guardian.  While a will and the appointment of a guardian is important for anyone with minor children, it is doubly so if the child is disabled.  Finding the right guardian can be difficult.  In some cases, the care needs of the child may be so demanding that he or she will need a different guardian from his or her siblings.  The parents need to make these determinations while they can.  The will is the vehicle for the appointment of a guardian.   

An adult child may also require a guardian when the parent can no longer serve in this role (whether officially appointed or not).  It will probably not be legally possible to officially appoint a successor guardian.  So, it may make sense to begin making the transition to a new guardian while the parent is able to assist in the process.  This can be in the form of a co-guardianship, or passing the baton to a successor guardian. 

4.         Care plan.  All parents caring for disabled children are advised to write down what any successor caregiver would need to know about the child and what the parent’s wishes are for his or her care.  Should the child be in a group home, live with a parent, be on his or her own.  Usually, the parent knows best, but needs to pass on the information.  The memo or letter can be kept in the attorney’s files with the parent’s estate plan. 

5.         Coordination with other family members.  Even a carefully developed plan can be sabotaged by a well-meaning relative who leaves money directly to the child with a disability.  If a trust is created for the benefit of the child, grandparents and other family members should be told about it so that they can direct any bequest they may like to leave to that child through the trust. 

If you’d like more information on planning for a disabled child, contact us for a no-cost initial consultation. 

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