Special Needs Trust
- Why should I consider a Special Needs Trust for a disabled family member?
- How does a Special Needs Trust work?
- How can funds in Special Needs Trust be used?
- What are the alternatives to a Special Needs Trust?
- What is the difference between a first-party and a third-party Special Needs Trust?
- What is the best way to setup a Special Needs Trust?
About 50 million Americans live with a disability. Two-thirds of these people have a severe disability that profoundly impairs major life activities. Whether the disability existed at birth or was the result of a chronic illness or catastrophic event, there is a typically a major financial burden created by disabilities—created by both the cost of care and potentially limited income earning ability. To survive and get quality care, many disabled individuals are able to qualify for means-tested government programs such as a Medicaid and SSI/SSDI. A Special Needs Trust, also known as a Supplemental Needs Trust, is a valuable tool in managing the financial needs of a disabled person while maintaining eligibility for these programs.
Why should I consider a Special Needs Trust for a disabled family member?
If you have a disabled family member, it is incredibly important that you consider their eligibility for continuing in those programs when making financial decisions for them and planning your estate. For those who are disabled themselves because of a catastrophic injury or a sudden accident, it is really important to maintain that eligibility as you receive settlement funds and potentially receive inheritances and gifts during your life.
A Special Needs Trust allows people with disabilities to receive sums of money from gifts, estates, or a legal settlement but still maintain eligibility for the critically needed means-tested government programs. In doing so, a Special Needs Trust allows your family member to maintain financial well-being for much longer periods of time than leaving assets to them directly.
How does a Special Needs Trust work?
In Special Needs Trust, a person known as the Grantor contributes money and/or assets. Once contributed, the assets held in the Special Needs Trust are not considered to be “available resources” by the government. The assets are managed and then distributed by a Trustee to the Beneficiary (who may also be the Grantor) in such as a way, typically in low amounts, that do not raise the assets of the Beneficiary high enough to ruin their eligibility. In this way, the trust assets can be distributed over many years, potentially for the entire life of the disabled person.
There are several important factors to consider when creating a Special Needs Trust. First, is who should serve as the Trustee. This has to be a person who the Beneficiary can trust to manage their money and assets. If you leave the disabled person assets from your estate, the Trustee will transfer the assets into the Trust. While this role can be done by a family member, many financial institutions and third-party fiduciaries will also perform the role.
The second important factor is funding the Special Needs Trust. First, every substantial gift to the disabled person should be made to the Trust. This keeps the gift from being counted as an available asset by the government. Second, when estate planning, the Special Needs Trust should be the heir or beneficiary of any funds you want to transfer to your family member. You should make sure that any life insurance policies, standard government benefits such as Social Security survivor benefits, and defined benefit retirement plans (such as 401k and IRA) have the Special Needs Trust as a beneficiary. We are Atlanta Metro estate planning attorneys experienced in handling these estate planning issues and will guide you through the process of making sure that your estate plan and Special Needs Trust are correctly structured.
The third important factor to remember is to make sure that your family member never accumulates more than $2,000 in assets unless they desire to no longer receive government benefits. This requires conscious and regular use of the Special Needs Trust.
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How can funds in Special Needs Trust be used?
The funds in a Special Needs Trust can typically be used for needs not met by government programs. These needs include transportation, home health aides, education, rehabilitation, recreation, computer equipment, and medical and dental care not provided by the government programs.
The funds cannot be used for food, housing, property taxes, home insurance, and utilities. These are expenses that should be met though SSI/SSDI or other programs. However, customizations to the living environment to accommodate the disability can be made through the Special Needs Trust.
What are the alternatives to a Special Needs Trust?
The typical alternative to a Special Needs Trust in estate planning is to effectively disinherit the disabled person and leave their bequest to another family member in hopes that they will use for the disabled person. This is not an effective plan for many reasons. Foremost is that the family member will rarely use the money on the disabled person’s behalf, Second, if the family member has creditors, they may take the bequest before it ever is used for the support of the disabled person.
The other alternative is to leave the bequest directly to the disabled person. This effectively removes their qualification from the means-tested program. The disabled person must spend all that money and wait a period of time before they become eligible again. This is likely to create more harm than good.
What is the difference between a first-party and a third-party Special Needs Trust?
A First-Party Special Needs Trust is created by a parent, grandparent, guardian, or court but funded by a disabled person, typically from a personal injury judgment or settlement, to preserve their eligibility for government benefits during their life. The goal is to make sure the settlement adequately cares for the person during their lifetime while allowing them to simultaneously take advantage of government benefits. In many states, the trust must have a provision that allows the government to recover what is left of the trust, up to the cost of benefits the government has incurred, once the Beneficiary has died.
A Third-Party Special Needs Trust is both created and funded by a one party for the benefit of a disabled person currently receiving government benefits. This typically is a scenario where a parent, grandparent, guardian, or other family member sets up a trust so that a family member can receive from a gift or from their estate without becoming ineligible for government benefits. There is no payback requirement.
Get your questions answered - Call for a complimentary strategy session at (404) 939-7562.
What is the best way to setup a Special Needs Trust?
We strongly recommend that you work with an experienced estate planning attorney to setup your Special Needs Trust. While you will find kits and other prepackaged approaches, the assistance of attorney can provide you with the comprehensive advice necessary to avoid any pitfalls.
We are Atlanta, Georgia estate planning attorneys who meet with clients, learn what their resources, needs, and goals are, and then proceed to create a Special Needs Trust, possibly along with an estate plan, that furthers those goals. We will work with our clients to address issues relating to services and long-term planning needs that will emerge or might emerge in the future.
When it comes time to implement the Special Needs Trust, we will help you assemble a team to handle issues including and relating to:
- Managing investments
- Coordinating professional services
- Handling tax issues
- Evaluating insurance needs
- Exploring housing options
Our firm is experienced in assisting the families of people with disabilities and creating Special Needs Trust. We will work with you to make sure that your Trust is properly setup and funded and that the Trustee understands their responsibilities. We will work to make sure that your family member is eligible to receive government benefits as long as they have a need. We will work to make this potentially complex process go smoothly.
Contact Us
If you have any questions or would like to get started, call our office at (404) 939-7562 or contact us online for a free consultation.
Get your questions answered - Call for a complimentary strategy session at (404) 939-7562.