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The Most Important Planning Tool for Special Needs Families

Posted on: February 16th, 2016
Planning for special needs families continues to evolve. Historically, families left their estates to other family members, and they just hoped the family would take care of the special needs person. Leaving an inheritance for a special needs person was risky and could jeopardize continuity of care. A Special Needs Trust (SNT), also known as a Supplemental Needs Trust, provides a much better option for special needs families.

Special Needs Trusts - The Key Planning Tool

A Special Needs Trust is primarily designed to preserve the beneficiary's eligibility for public benefits. SNTs are commonly used in planning for three main reasons:
  1. For the future of a disabled person,
  2. For a disabled client who inherits an estate, or
  3. For a client receiving a personal injury claim.
As the number of defined disabilities increases (i.e. the increase in autism), the SNT has become much more common in planning.

3 Types of Special Needs Trusts

In general, Special Needs Trusts fall into three primary categories:

1. First-Party Special Needs Trusts, or Self-Settled Special Needs Trusts - These types of trusts are created with the beneficiary's own assets, and many times from a settlement or other lawsuit award. It is important to understand the assets involved are the assets of the special needs person. This trust is also called a d(4)(A) special needs trust -- a reference to the US code creating this type of trust -- 42 U.S.C. Section 1396(d)(4)(A).

Regardless of what you call these types of trusts, the trust assets and income are used only for the beneficiary's special needs under specific, limited guidelines. The assets held in the first-party SNT, and the transfer of assets to this trust, will not disqualify the beneficiary from means-tested government benefits such as Medicaid and Supplemental Security Income (SSI). This allows the beneficiary to qualify for these government benefits, and also use the trust at the death of the beneficiary, then these assets must be used to pay back the government agencies for any benefits paid.

2. Pooled Special Needs Trusts - A related trust to #1 is a pooled trust, or a pooled Medicaid payback trust. This trust is also known as a d(4)(C) special needs trust because of the code that created it -- 42 U.S.C. Section 1396(d)(4)(C). This trust is created by a nonprofit organization and separate accounts are created for the benefit of the disabled individual(s). A major benefit is there are no age restrictions for this trust, as compared to the trusts discussed above, which can only be created for those 65 years and under. Like the first party or self-settled trusts, a transfer of assets to the trust does not disqualify the beneficiary. Any remaining assets are either paid back to the government agency, or kept in the pooled trust to assist other disabled individuals.

3. Third-Party Special Needs Trusts - The most common application for special needs trusts is known as the third-party special needs trust. This type of trust is created with assets from parents, family members or other third parties to the beneficiary. As an example, parents will leave their life insurance to a third-party special needs trust for a disabled child. These assets are then used to support the beneficiary during his or her lifetime without disqualifying the beneficiary from means-tested government benefits. Generally, these assets cannot be used for food or shelter, and there are specific guidelines on how these assets can be used. Upon death of the SNT beneficiary, any assets remaining in a third-party SNT are NOT subject to Medicaid payback provisions. So these assets can then be distributed to additional beneficiaries named in the third-party special needs trust.

Other Planning Tools

While SNTs continue to serve as the backbone of any special needs plan, there are additional planning tools we can use like Medicare Set-Aside Trusts that also have applications for special needs families. New laws like the Achieving a Better Life Experience Act (ABLE Act of 2014) will soon create ABLE accounts, which are designed to work similarly to 529 accounts commonly used for college savings. Even as the field continues to evolve, SNTs remain the foundational planning tool upon which all effective special needs plans are built.

As we've said many times, this is a complicated area of law, and families with special needs loved ones need an experienced and compassionate attorney as part of their support system. Additionally, they need the expanded network of special needs professionals that these attorneys work with on a regular basis, so they can benefit from their expertise.

If you, or someone you know, could benefit from a special needs plan, we encourage you to explore our other special needs resources or call our office and make an appointment. Your initial consultation is on us. That way you can take the time to get to know our team, and we can get to know you and the unique details of your situation. Then we can recommend best next steps for you and begin the process of creating the targeted results. Give us a call at 913-345-2323 to schedule a time to talk.

 

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