Special needs planning is unique from typical estate planning when you have beneficiaries with unique challenges and perhaps who also participate in means-based government programs, such as developmental disability (DD) services, Medicaid, or Social Security Supplemental Security Income (SSI). Special needs planning allows you to:
- Provide a legacy for your special needs loved ones,
- Designate someone to manage the trust for their benefit,
- Handle any unexpected inheritance or personal injury lawsuit funds,
- Protect them from creditors and predators, and
- Protect their eligibility for benefits.
Special Needs Planning Options
There are a few special needs planning options and many important factors to take into consideration when developing a plan. Charlotte C. Johnson can help you determine which special needs option would best meet your goals for yourself or your loved one.
Family and friends can provide the most favorable and flexible option for disabled beneficiaries of any age by including special needs provisions within their own trust—or what is called a Third-Party Special Needs Trust. Rather than give a gift or inheritance directly to someone on means-based benefits, third parties can give those assets to a trust to be used for that disabled beneficiary’s benefit. With the proper trust terms and administration, it should not impact the disabled beneficiary’s eligibility for means-based benefits. Most importantly, this type of trust does not include a payback provision to the relevant state Medicaid program for the beneficiary’s medical expenses.
There is also the option to use a pooled trust to manage disabled beneficiaries’ inheritance for them.
For those who were disabled before age 26, they or their legal representatives may open an account which may hold funds that are not counted toward their eligibility for certain means- based benefits, such as SSI or Medicaid. Anyone may contribute to the account, up to $15,000.00 total per year, with a maximum amount of $100,000.00 (to remain exempt for SSI purposes). Growth of the funds is also tax-free if spent on qualified disability expenses (which are also important for means-based benefits eligibility purposes). Funds remaining in the account on the owner’s death are to be paid to any states whose Medicaid programs paid for any medical expenses of the disabled person. For more information, check out www.ablenrc.org.
A first-party special needs trust is funded with the assets of a disabled person, typically due to an unexpected inheritance, personal injury lawsuit, or accumulation of funds. It is established for the sole benefit of a disabled person. It must be funded before the person reaches age 65. It can be established by the disabled person (who has capacity), a parent, grandparent, guardian, or court. The administration of this trust is complex and allowable distributions may be complicated. Please note, the trust must provide for reimbursement on the termination of the trust to any states whose Medicaid programs paid for medical expenses of the disabled trust beneficiary.
This trust is very similar to the First-Party Special Needs Trust, except it is administered by a trust company. On the death of the disabled beneficiary, if the remaining funds are not paid to the state, they might be retained by the trust company to benefit that organization.
|Type Trust||Source of $||Rules/Supervision||Payback To State|
|3rd Party SNT||Another person||Relaxed||No|
|ABLE account||Disabled person or another person||More relaxed||Yes|
|1st Party SNT||Disabled person||Strict||Yes|
|Pooled SNT||Disabled person||Strict||Yes|
Quite often, a parent may feel they have no option but to omit their special needs children from their estate plan, hoping that the other beneficiaries will use their own inheritance to look after the special needs children. By doing this, these parents risk that the other beneficiaries are willing or able to use the funds that way. Life happens, whether it be divorce, death, financial need, bankruptcy, lawsuits, etc. In that event, those beneficiaries can’t claim at that time that the funds are not theirs, but belong to a disabled child. Furthermore, those parents may overlook valuable life care planning that could help provide a more realistic legacy for a disabled beneficiary’s specific needs. With proper legal and financial planning, you can ensure your wishes to support your special needs children are fulfilled.
Since you know your child best—you are probably the best resource for that information. Write it down! One of the best steps a parent with special needs children (or minor children) could take is to write down what someone would need to know about that child, such as:
- Medical information
- Emergency contacts
- Daily routines
- Family/support information
Whether you agree or not, once a person attains the age of eighteen, they are legally an adult. For a person with special needs, this may be problematic. It means they make their own decisions, as far as their finances, healthcare, living arrangements, education, benefits, etc. A guardianship may allow you to continue to parent an incapacitated child who has reached legal adulthood.
Charlotte C. Johnson can help you determine whether guardianship is appropriate for your child.