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The information in this guide should not be considered legal advice. While we strive to provide as detailed, reliable and understandable legal information as possible in our Special Needs Guides, they cannot substitute for an attorney applying the law and years of experience to a particular client situation. We urge readers to use the Guides as background material and to consult with one of our members before taking action.

The Guide to Special Needs Planning

Planning for Your Child with Special Needs

The best interest of all family members is served when you secure the counsel of an experienced professional who practices Special Needs Planning. Take comfort in knowing you have performed a thorough investigation and have taken steps to preserve both your family’s assets and expected government benefits to provide your loved one with special needs the best future you are able. Read More

Introduction

Estate planning by parents who have children with special needs includes many challenges:

  • How do you leave funds for the benefit of the child without causing the child to lose important public benefits?
  • How do you make sure that the funds are well managed?
  • How do you make sure your other children are not over-burdened with caring for the sibling with special needs?
  • What is fair for distributing your estate between your child with special needs and your other children?
  • How do you make sure there is enough money to sustain your special needs child over time?

Often, parents of children with special needs try to resolve these issues by leaving their estates to their other children and disinheriting the child with a disability.

They have several reasons for this approach: The special needs child shouldn’t receive anything because she can’t manage money and would lose her benefits. She needs no inheritance because she will be taken care of by the public benefits she receives. The other children will take care of their sister.

This approach is unsound for several reasons:

  • Public benefits programs are often inadequate. They need to be supplemented with other resources.
  • Both public benefits programs and individual circumstances change . What’s working today, may not work tomorrow. Other resources must be available, just in case.
  • Relying on one’s other children to take care of their sibling places an undue burden on them and can strain relations between them. It makes it unclear whether inherited money belongs to the child to spend as he pleases, or whether he must set it aside for his sister with special needs. If one child sets money aside, and the other doesn’t, resentments can build that may split the family forever.

The better answer for many of these questions is the Supplemental Needs Trust, also often called a “Third-Party Special Needs Trust.” Such trusts fulfill two primary functions: to manage funds for someone who may not do so himself due to disability, and to preserve the beneficiary’s eligibility for public benefits, whether that be SSI, Medicaid, public housing, or any other program. Read More

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How Trusts Work
A trust is a form of ownership of property, whether real estate or investments, where one person – the trustee – manages the property for the benefit of someone else – the beneficiary. The trustee must follow the instructions laid out in the trust agreement about how to spend the trust funds on the beneficiary’s behalf – whether and when to distribute the trust income and principal.

Trusts fall into two main categories: self-settled trusts sometimes referred to as a “First-Party Special Needs Trust” that the beneficiary creates for himself with his own money, and third-party trusts that one person creates and funds for the benefit of someone else. A self-settled trust is appropriate for an individual who is disabled coming into an inheritance or receiving proceeds from a personal injury or medical malpractice claim; a third-party trust is best for a family member planning for a loved one with special needs, or one spouse planning for a spouse with a disability.

Each situation and each benefit program has its own rules that affect the drafting, funding and administration of special needs trusts. You cannot create a trust for your own benefit and have the funds uncountable for Medicaid, SSI and other public benefit programs. However, Medicaid and SSI have provided for “safe harbors” that permit the creation of self-settled special needs trusts in certain circumstances.

Accessing and Preserving Public Benefits
If one person creates a trust for the benefit of someone else, and the trustee has complete discretion about whether and when to make distributions to the beneficiary, the trust funds will not be considered as available when considering the trust beneficiary’s eligibility for public benefits.

Matters get more complicated when the trust income and assets are used for the beneficiary. For instance, trust funds distributed directly to the beneficiary will reduce his SSI dollar for dollar. Trust funds used for food and shelter will also cause a reduction in SSI benefits. While the existence of a properlydrafted trust will not affect eligibility for benefits, using the trust funds could if care is not taken. Read More

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