A special needs trust is generally used for disabled children or adults. The trust is designed to benefit the child or adult in a way that does not cause them to be disqualified from receiving need-based government benefits such as Medicaid or Supplemental Security Income (SSI). Examples of typical uses for special needs trust are:
1. A disabled child or adult has a severe physical or mental disability and qualifies for Medicaid or SSI benefits that would be lost if the child received an inheritance outright.
2.A disabled child or adult receives a monetary settlement which will cause the disqualification from Medicaid or SSI benefits.
An inheritance by a disabled child or adult that is already receiving Medicaid or SSI benefits will likely cause the government benefits to be terminated. However, if the parent’s or grandparent’s estate planning provides that the disabled child’s share of the estate is distributed to a Special Needs Trust for the benefit of the disabled child (called a third party Special Needs Trust), the Medicaid or SSI benefits can be protected.
If a disabled child or adult were to receive a monetary settlement or payment, the receipt of such funds will likely cause the termination of any government benefits. If however, those assets are transferred to a Trust for the benefit of the disabled child or adult (called a first party Special Needs Trust), the government benefits can be protected.
How does it work?
Generally, a Special Needs Trust provides that the trustee has total and absolute discretion whether or not to make any distributions to or for the benefit of the disabled person. This will result in the assets of the trust not being treated as owned or controlled by the disabled person. Medicaid and SSI will pay for the medical expenses and basic living costs for the disabled person, but the assets in the trust can be used to supplement the ‘special needs” of the disabled person, such as allowing the person to travel or take vacations.
How does the client benefit?
The client knows that a child’s inheritance or settlement proceeds will not be consumed by medical expenses or other expenses. This is a great relief for clients who are concerned about protecting their children or grandchildren when they will no longer will be alive to protect and care for them. The Trust enables the inheritance or settlement proceeds to be used to supplement the “special needs” of the disabled child or adult while protecting any government benefits they may be eligible for.
What does the attorney do in these types of engagements?
That role of the attorney is to prepare the appropriate Trust for the client to provide the necessary protection for the disabled child or adult. The laws regarding Special Needs Trusts are very complicated and if the trust is drafted improperly, it can cause the disabled child or adult to lose government benefits they would otherwise be entitled to. Also, a probate court may be required to authorize the Trust and the attorney would have to obtain the court authorization.
What are the clients’ responsibilities?
Primarily, the clients need to alert the estate planner to the special needs of a beneficiary they want to benefit. The client will need to decide who they want to act as the trustee of the Special Needs Trust. It is always recommended that a back-up, or successor trustee also be selected.