Special Needs Trusts and Disability Planning

Questions Faced by Parents of Disabled Children

  1. Who will care for my disabled child when I am no longer able to do so?
  2. Will my own medical needs and the catastrophic costs of long-term care deplete my assets so that little or nothing will be left for my disabled child?
  3. Can my child maintain eligibility for Supplemental Security Income (SSI), Medicaid, community services for the developmentally disabled, housing subsidies and other need-based public benefits after I’ve passed away?

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Planning for a Disabled Family Member

Americans are living longer than they did in years past, and the life span of those with disabilities is also increasing. According to one estimate, 480,000 adults with mental and/or emotional disabilities are living with parents who are aged 60 or older. This figure does not include adult children with other disabilities and those who live separately, but still depend on their parents for vital support.

When these parents can no longer care for their children due to their own disability or death, the responsibility to provide care falls on siblings, other family members or friends, or professionals. In many cases, expenses will increase dramatically when care and guidance provided by parents instead must be provided by a professional for a fee.

Planning by parents can make all the difference in the life of a child with a disability as well as that of his or her healthy siblings who may be left with the responsibility for caring for the disabled sibling in addition to managing a career and caring for their own families and, possibly, ailing parents.

The Critical Component: A Plan of Care

For a family with a disabled child, the goal of family estate planning usually involves providing for the disabled child’s needs without endangering eligibility for needs-based governmental benefits.

Often, parents make outright bequests to their children in equal shares, but this distribution plan may be detrimental for a disabled child. An inheritance could disqualify an adult disabled child for government assistance. Disqualification for public benefits may also occur if the disabled child is the beneficiary of a life insurance policy or retirement plan, or if the child owns a bank account jointly with another.

A trust provides a much safer vehicle for providing funds to a disabled heir. The trust will protect assets from the claims of creditors and should, if properly drafted, allow the child to continue to qualify for the needs-based government assistance so vital to the child’s continued well-being.

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Special Needs Trusts

Special needs trusts (also known as “supplemental needs” trusts) allow a disabled beneficiary to receive gifts, lawsuit settlements, inheritances or other funds and yet not lose eligibility for government programs based upon financial need. Such trusts are drafted so that the funds will not be counted in determining the beneficiary’s eligibility for public benefits. As the name implies, special needs trusts are designed to pay for comforts and luxuries that could not be paid for by public assistance, not to provide basic support. These trusts typically pay for goods and services like education, recreation, counseling, and medical attention beyond the simple necessities of life. (However, the trustee can use trust funds for food, shelter and other necessities if the trustee decides doing so is in the beneficiary’s best interest despite the possible loss or reduction in public assistance.)

Very often, special needs trusts are created by a parent or other family member for a disabled child (even though the child may be an adult by the time the trust is created or funded). Such trusts also may be established in a Last Will and Testament so a deceased family member to leave assets to a disabled relative. In addition, a guardian of the disabled person and/or a court can also create the trust. These “self-settled” trusts are frequently established by individuals who become disabled as the result of an accident or medical malpractice and later receive the proceeds of a personal injury award or settlement. Each public benefits program has restrictions that the special needs trust must comply with in order not to jeopardize the beneficiary’s continued eligibility for public benefits.

The Parents’ Estate Plan

In order for a disability plan involving a special needs trust to be effective, the parents’ estate plan often must be modified. Any inheritance for the disabled child should be left to the special needs trust. Parents also must tell family members who might wish to gift assets to the disabled child during his/her life or leave assets to the disabled person as an inheritance upon his/her death that they must direct all gifts and bequests for the child to the trust. Beneficiary designations on all life insurance policies, IRAs, retirement accounts, etc. must be changed so that the disabled child does not inherit directly. Instead, the non-probate assets should be directed to the special needs trust.

Additional Information

For additional information regarding Special Needs Trusts and Disability Planning, call us at 908-232-7400 or click here to contact us online.