PLANNING FOR A BENEFICIARY WITH SPECIAL NEEDS

When it comes to estate planning there is never a “one-size-fits-all” solution. There are many tools and the estate planner’s job is to determine which one makes sense for each person’s particular circumstances. When that person’s estate plan includes a beneficiary who is disabled, quite often the right tool is a “special needs” trust. Otherwise, you could jeopardize your loved one’s ability to receive Supplemental Security Income (SSI) and Medicaid benefits. By establishing a “special needs trust” in your Will, you can avoid some of these problems.

Government programs like Medicaid and SSI can provide substantial support for seniors and for people with disabilities. But both are “needs-based programs” that only provide benefits to people who meet specific financial standards. Those standards include strict limits on the amount of savings and other assets an applicant can own. As such, if your Will leaves money or other assets directly to a disabled beneficiary, those inherited assets may cause them to lose their entitlement to certain benefit programs, or they may have to spend the assets before they become eligible for benefits. One way to avoid losing eligibility for “needs-based programs” is to create what is known as a “special needs” or “supplemental needs” trust. Then, instead of leaving property directly to your loved one, you leave it to the special needs trust.

The exact terms of such a trust can vary depending upon the beneficiary’s needs, but the general concept of all special needs trusts are the same. That is, the trust states that the trust funds can be used for the disabled beneficiary, but are not to be considered available to the beneficiary when determining their eligibility for needs-based programs, such as Medicaid. Each program has its own rules, so the exact language used in the trust is extremely important, but the idea is to express a clear intent to preserve the beneficiary’s access to public benefit programs and use the trust only as a supplement. Typically, a trust like this would run for the lifetime of the disabled beneficiary. As such, you need include a provision listing alternate beneficiaries to receive what is left when the disabled beneficiary dies. Trusts like this can also be used for a disabled spouse. For example, if a husband is suffering from dementia, the wife might want to structure a plan to leave funds to her husband in trust, available for use if needed but not exhausted to pay for nursing home care if Medicaid benefits are available.

With a trust that you create under your Will, you can set the rules as you wish. However, there is another type of “special needs” trust that a disabled person can create using their own funds. For instance, if a disabled person receives funds from a lawsuit, those funds can be placed in a “first party special needs trust” and the disabled person will not lose their SSI or Medicaid benefits. This option is generally available as long as the disabled person is under the age of 65 years. One big difference between this “first party” trust and the trust that you might create under your Will is the “payback” requirement. That is, a “first party” trust must include a “payback” provision which states that any funds remaining in the trust when the disabled person dies must be used to repay all Medicaid benefits that the beneficiary may have received.

Planning for a disabled beneficiary is never easy and one roadblock is finding a suitable trustee. Most people do not have the expertise to manage a trust, even if they are family members, and so a professional trustee may be a wise choice. For those who may be uncomfortable with the idea of an outsider managing a loved one’s affairs, it is possible to simultaneously appoint a “trust protector,” who has the power to review accounts, hire and fire trustees and instruct the trustee on the beneficiary’s needs. If you don’t have a good candidate to serve as a trustee or if you are leaving a relatively modest sum that doesn’t justify the cost of a separate special needs trust, you should consider a “pooled trust.” These are special needs trusts run by nonprofit organizations that pool and invest funds from many families. Each trust beneficiary has a separate account, and the trustee chosen by the nonprofit spends money on behalf of each beneficiary. For smaller amounts, a new option is also becoming available. These are known as “ABLE Accounts” and I anticipate Pennsylvania will adopt legislation in the near future permitting disabled persons to set aside funds for their own benefit. I’ll cover these in a subsequent article once that law passes.

As I am sure you can tell, this is not simple planning. The attorneys in our office have experience dealing with these issues. If your beneficiaries are disabled or may need access to benefit programs, you should consult with The Elder Law Firm of Robert Clofine.