Special Needs Planning
Life Requires Planning . . .
If you have a disabled loved one, a child or a grandchild, you recognize how vitally important it is to ensure that such loved one receives all of the care and attention that their special circumstance requires. You want to utilize—and maximize—your assets in a way that will enrich your loved one’s life. However, providing all of that care and attention is expensive. Accordingly, it is important to preserve the public benefits which may be available to them, either now or in the future. Economically, a number of government programs exist to support disabled persons. These programs include Supplemental Security Income (SSI), Social Security Disability Income (SSDI), Medicare and Medicaid. To be eligible for some of these programs, an individual can only earn a nominal amount of income and own very limited resources. The receipt of cash or other liquid resources, either through a Will or by beneficiary designation, will frequently disqualify a disabled person from receiving the above mentioned government benefits. If your loved one has substantial physical needs, the loss of Medicaid alone can be devastating. Accordingly, it is critical in your planning to anticipate these distributions and provide for them appropriately.
What Are Your Options? Parents (or other family members) of a disabled child have four primary options with respect to their estate planning as it relates to the special needs family member.
First, they might consider disinheriting the disabled child. In most cases, however, parents (and other family members) will want to provide for their loved one, in some fashion. Therefore, disinheriting the child is not a desirable or a viable option.
A second option is simply to distribute the assets directly to the child with disabilities, or to an “ordinary trust” for his/her benefit. However, as stated above, distributing assets directly to a child or grandchild who is receiving government benefits—or who may be eligible to receive such benefits at a future point in time—is also not desirable because the receipt of such funds will jeopardize his or her benefits (either now or in the future). If the parent’s Will provides for assets to be distributed outright to the child, the government benefits which the child is receiving may be reduced or wholly eliminated as a result of the inheritance. Furthermore, even if the disabled child is not then receiving government benefits (or is not receiving benefits at the time the Will was created), receipt of an inheritance could jeopardize their ability to receive such funds at a future point in time. In addition, the child may become charged for program benefits they received prior to receipt of the gift or inheritance.
As a third option, the parents (or grandparents) may opt to distribute the assets which would otherwise pass to the disabled child to the child’s siblings with the understanding that the siblings will use the assets for the benefit of such child. This third presents a variety of problems. For example, by distributing assets to a sibling with the intent that the assets be used for the child with disabilities, you expose the assets to the creditors of the sibling(s). Furthermore, if the sibling later gets divorced, the inherited funds could be at risk in connection with the division of assets in the divorce proceedings. Next, if the sibling predeceases the child who is disabled, the sibling’s will governs the distribution of assets. The parent may have been comfortable with a healthy child of theirs managing the funds for their disabled child, but they are likely less comfortable with the assets in the hands of anyone else. Of course, there is also the risk of misappropriation or mismanagement by the sibling. Finally, if the sibling spends more than the annual gift tax exclusion amount (currently, during 2015, $14,000) per year for the benefit of the disabled person, a taxable gift may result.
This leaves a fourth option: to distribute assets to a Supplemental Needs Trust (“SNT”) for the benefit of the child.
What Is a Supplemental Needs Trust? A SNT can be established and funded either during your lifetime or upon your death. The primary purpose of a SNT is to benefit a loved one who qualifies for means-tested public assistance programs. The assets in the trust are available to supplement (but not replace) the benefits being provided to the SNT beneficiary through government programs. In addition, since the loved one is often unable to manage his or her financial affairs, by establishing a SNT the parent ensures proper management by a qualified trustee. Further, a SNT is designed so that the funds are not considered “available” to the beneficiary and, therefore, the beneficiary’s benefits are preserved. The best of both worlds can be achieved: government benefits can be preserved and your loved one can benefit from the funds which you wish for them to receive. These very special types of trusts can be tailored to suit the specific needs and/or interests of the trust beneficiary. Assets of the trust can be used to provide for travel; education; medical, dental or vision expenses not otherwise covered by insurance; companions; entertainment; and many other categories of potential distributions. The assets simply cannot pay for items which the beneficiary is receiving from a government source (at least not without risk of reduction in benefits).
By contrast, Special Needs Trusts (as opposed to Supplemental Needs Trusts) are used when the disabled individual receives funds and the receipt of such funds would disqualify them from benefits. In such case, a Special Needs Trusts can be established in order to preserve government benefits. This most often comes up in the context of an inheritance or lawsuit award or settlement. Special Needs Trusts are also sometimes referred to as “Self-Settled” trusts in that they are funded with the beneficiary’s own assets. A key distinction between these two types of trusts is that with a third party SNT, after the death of the beneficiary, the trust settlor can direct to whom the remaining trust assets are to be distributed. With a self-settled special needs trust, upon the beneficiary’s death, the State must be designated as primary beneficiary.
Our Plan. At Fendrick & Morgan, LLC, our approach to planning for individuals with special needs is to be proactive. We want you to have the necessary documents in place during your lifetime so that the benefits your loved one is receiving (or might receive at some future point in time) are not jeopardized after your death, when your loved one might receive an inheritance from you. When drafting a SNT, the specific needs of the individual beneficiary must be carefully considered in light of the complex rules and regulations which surround these Trusts. We are guided largely by the Program Operations Manual System (POMS), which is published by the Social Security Administration (SSA) and contains the operating procedures for SSI. We also must be careful in counseling our newly appointed Trustees regarding how the SNT should be administered. Improper distributions from a properly-drafted and funded trust can cause the loss of public benefits to the beneficiary of the trust. When necessary, we can also assist with the establishment of Special Needs Trusts. If you need the help of a special needs trust attorney in New Jersey, Fendrick & Morgan will give you the peace of mind you deserve.
Benefits of Advance Special Needs Planning
- Preserve valuable government benefits being provided to a loved one.
- Avoid dissipation of assets, paying for a loved one’s medical, housing and other support needs.
- Appoint a qualified Trustee to manage Trust assets and control distributions.
- Ability to designate ultimate Trust beneficiaries.
- Avoid estate recovery.
- Peace of mind.