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Estate planning is important for every family for several reasons, however, it becomes critical if you have a child with a disability.

Estate Planning for the Special Needs Family

Published February 3, 2023

By Amy C. O’Hara, CELA

Estate planning is important for every family for several reasons, however, it becomes critical if you have a child with a disability. In creating a well thought out estate plan you can ensure your child is protected both financially and personally.

Part of your plan will include designating a guardian of your minor child with a disability, who may require a guardian into adulthood. Careful thought must be given in choosing the appropriate guardian who will attend to your child’s unique daily needs, not only in love and support, but education and medical care as well.

Often, if a child with a disability is expected to need government benefits to help support them throughout their life, then a supplemental needs trust may be an appropriate part of your estate plan.

A supplemental needs trust, sometimes referred to as a special needs trust or SNT, is a trust which preserves your child’s eligibility for needs-based government benefits such as Medicaid and Supplemental Security Income (SSI). Because your child does not own the assets in the trust, they can remain eligible for government benefit programs that have asset limits. A few examples of what can be paid from the trust include, medical expenses not covered by Medicaid, special therapies, recreational and cultural experiences, vehicles, clothing, sometimes food and shelter, and, for the most part, any services or items which enrich your child’s life.

Generally, there are two types of supplemental needs trusts: first party and third party.

A first-party supplemental needs trust is funded with assets or income that belong to your child. Typical funding comes from child support, a personal injury settlement, or an outright inheritance from a well-meaning family member who did not understand that such a gift could disqualify your child from benefits. In order for the assets of this type of trust not to count for Medicaid or SSI purposes, federal law requires that your child must be under the age of 65 when the trust is created and funded; the trust must be irrevocable and provide that Medicaid will be reimbursed upon your child’s death or upon termination of the trust, whichever occurs first. Also, your child must be classified as disabled by the Social Security Administration and the trust must be administered for your child’s sole benefit.

A third-party supplemental needs trust is funded with assets belonging to a person other than your child – namely a third party. In fact, no assets belonging to your child may ever be used to fund the trust. Third party SNTs are an ideal estate planning vehicle for parents or other family members and friends to leave an inheritance to a person with disabilities. Not only will a third party SNT shelter an inheritance for eligibility for government benefits, but it can also provide for your child’s lifelong needs if funded with sufficient assets and managed properly. With third party SNTs, there is no Medicaid payback required upon your child’s death; rather, you decide how the remaining assets are distributed upon your child’s passing.

With any supplemental needs trust, the trustee must be given absolute control over the distribution of the trust assets. Your child cannot demand distributions, receive cash distributions or deposit money into their bank account from the trust. Nor can your child have the authority to revoke or amend the trust; otherwise, the assets can be counted as an available resource to your child and they could lose their government benefits.

Thoughtful consideration should also be given to the choice of trustee. In choosing a trustee, consider the potential trustee’s ability to be sensitive to your child’s disabilities; actively monitor any services provided; aggressively advocate for all benefits; and prudently invest trust assets. A trustee can be your child’s guardian, family member, close friend, and/or a professional corporate trustee. More than one trustee can serve at any given time. It is common to have both a professional and an individual serving as trustees together.

Supplemental needs trusts are complex. The language used in supplemental needs trusts can vary greatly from one trust agreement to another and from state to state. It is essential for trustees to understand the terms in the written trust agreement. A legal professional experienced in special needs planning can ensure that the trust document meets the needs of your child, the person who is funding the trust, and the trustee who is administering the trust.

At Littman Krooks we meet with families daily to address their estate planning issues and concerns, including selecting guardians and trustees and ultimately establishing a proper and protective estate and special needs plan.

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