What is special needs planning?
In the field of estate p
lanning, steps can be taken to provide for people that are in unique situations. This applies to the facilitation of inheritances to people with disabilities.
Why can’t you just name someone with a disability in a simple will?
You can certainly do this, but there is a potential downside. Many people with disabilities rely on Medicaid as a source of health insurance, and they receive income through the Supplemental Security Income program.
These are need-based benefits, so you cannot qualify if you have significant assets in your own name. A direct inheritance that is received through the terms of a will would change the recipient’s financial profile, and they could lose their benefit eligibility.
What can you do to preserve the benefits?
The widely embraced solution is a legal device called a supplemental needs trust. These trusts are sometimes called special needs trusts, and the terms are used interchangeably.
If you create and fund a trust for the benefit of a loved one with a disability, you name a trustee to act as the administrator. Any competent adult that is willing to assume the role can legally act as the trustee, but you should consider longevity along with financial and administrative acumen.
There are professional fiduciaries that will provide trustee services for a fee, and this can be the right choice in many cases.
The trustee would be able to use the funds to make the beneficiary more comfortable in a number of different ways. As long as all the rules are followed correctly, benefit eligibility would not be negatively impacted.
What types of things can the trustee provide?
Assets in the trust can be used to enhance or supplement the government benefits; under the guidelines, they should not replace the benefits. This means that the trustee is not supposed to use the assets to provide absolute essentials like food, clothing, and shelter.
The trustee could cover these costs, but this would result in a reduction in SSI benefits. Since the maximum reduction is only one third of the benefit, in some instances, this can be an inequitable trade-off.
These are some of the types of things that the trustee can provide without triggering a reduction in benefits:
- Medical and dental procedures not covered by Medicaid
- Uncovered therapeutic and rehabilitative treatments
- Specially equipped vehicle
- Computers and other electronic equipment
- Appliances
- Training and tuition
- Vacations with or without a paid companion
- Recreation
This is just a partial list, and in fact, the trust can actually purchase a home that the beneficiary can reside in.
What happens to assets that are left in the trust after the death of the beneficiary?
This is a very good question. In some cases, a person with a disability will receive a direct windfall for some reason. It can be a personal injury settlement, life insurance proceeds, or even a lottery win.
Under these circumstances, the assets can be used to establish and fund a supplemental needs trust. The trustee would have the same ability to use the assets to improve the beneficiary’s life in many different ways.
However, Medicaid is required to seek reimbursement from the estates of people that were using the program while they were living. The remainder in a first party trust that was funded by the beneficiary would be available to Medicaid during this recovery phase.
On the other hand, if you use your resources to create a supplemental needs trust, you name a successor beneficiary in the trust declaration. This individual would inherit the remainder after the death of the first beneficiary, and Medicaid would be left out in the cold.
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Mr. Lowe was awarded his Juris Doctorate degree and Tax Law Certificate from the University of Connecticut School of Law. After graduation from law school, Mr. Lowe worked as an international corporate tax planning associate with Deloitte Tax LLP.
Mr. Lowe is admitted to practice before all the state courts in the State of Connecticut and is a member of the American Bar Association. He is also a member of the American Academy of Estate Planning Attorneys. In addition, Mr. Lowe is an active member of the Connecticut Bar Association where he is a member of the Estate Planning and Probate Section, the Elder Law Section and the Young Lawyers Section. Mr. Lowe is also a member of Hartford Young Professionals & Entrepreneurs.
Mr. Lowe was selected for Super Lawyers Rising Stars from 2017-2021.