Many individuals want to leave behind money to a loved one that is experiencing a disability or has special needs. However, you will want to ensure you take the proper steps to properly transfer these funds over to your loved one without jeopardizing their government benefits. The formation of a special needs trust may provide you with the avenue you are looking for.
What are Special Needs Trusts?
Special needs trusts are trusts that hold funds for an individual but are designed not to impact that individual’s financial eligibility for government programs, such as SSI or Medicaid (MediCal in California). Special Needs Trusts, or SNTs, give those with loved ones that are experiencing a disability a means to leave behind money that is intended to improve that person’s quality of life. The funds that are placed in a special needs trust are not calculated as part of the individual’s overall assets and the funds would be managed by a designated trustee.
Who Benefits from a Special Needs Trust?
You may be considering a special needs trust if you have a loved one or a child that is special needs or is experiencing a disability. Special needs trusts can benefit those that need additional resources and access to programs, as well as benefits, to help them achieve the highest quality of life. Many government benefit programs are considered means tested. This means that oftentimes you must have a limited income. Resources and assets given to a beneficiary without the use of a special needs trust could impact the eligibility for these other benefits.
Estate Planning for Special Needs Children and Adults
A child that is eligible for public or government assistance due to the special care that is required means that extra planning will need to be taken. A parent that has a child who has special needs or has a child who is disabled may be looking into planning options, as part of their estate planning process. Generally, there are three different options to choose from.
- Disinherit the child. Disinheriting the child would allow the child to rely exclusively on public benefits. While this sounds detrimental, there are instances where this could be beneficial for the child. That might include how much wealth is in the family, as well as the extent of the child’s disability. Each case is different and depends on many different factors. However, disinheriting the child would eliminate a potential backup plan for the future.
- Make a gift to the child or adult. Making a gift to the child or adult may be beneficial in certain instances. This might be true if the loss of government benefits is not a concern or the need from public benefits is minimal. When a gift is made, public benefits that the child or adult is receiving will be affected negatively. How much they are impacted can vary, depending heavily on the amount they have received. The amount gifted to them could even cause them to become ineligible for public benefits in the future.
- Create an SNT. Many individuals opt for creating a special needs trust, as it helps to potentially safeguard government benefits for the beneficiary. This is because the main purpose of an SNT is to keep the child or individual eligible for their public benefits and to qualify for assistance programs. SNTs can be formed during life or at the death of a third party for the disabled or special needs person.
Types of Special Needs Trusts
Third Party SNTs
These types of trusts can be added to by anyone. But, they are most often created by the parents of a child that is disabled or considered special needs. Third party trusts do not need to be enabled by federal legislation. These trusts contain funds that have been donated or gifted by a third party during life or after death. The funds contained in these trusts do not count against the beneficiary, allowing them to maintain their eligibility to receive access to public support.
Self-Settled SNTs
Self-settled SNTs are also referred to as first-party SNTs. They are funded with assets and income that belongs to the individual that is experiencing the disability. This individual is also the beneficiary of the trust. In order for the assets to not count towards Medicaid or SSI, the beneficiary needs to be under the age of 65 at the time that the trust is created. What is in the trust will need to first be used to pay any state Medicaid agency and liens must be dealt with appropriately. Then, the beneficiary may qualify for public assistance.
Pooled Trusts
Pooled trusts are generally overseen by a nonprofit organization. These organizations have experience in managing trusts for disabled or special needs individuals. So, the grantor will not need to choose a trustee to manage the assets, as the nonprofit will manage the funds for them. When the beneficiary passes away, the funds will be paid to the state or the nonprofit will overtake the funds.
ABLE Accounts
In your estate planning processes for disabled or special needs individuals, you may have stumbled upon ABLE accounts. ABLE accounts are not trusts, but they do operate similarly and can be used to benefit an individual that is considered special needs. Distribution rules follow closely to that of special needs trusts. If an ABLE account has over $100,000 in assets, then SSI benefits may be affected.
Schedule a Consultation with Trust and Estate Planning Attorneys in California Today
Estate planning for a special needs child or adult can feel overwhelming, especially if you have never embarked on the estate planning process in the past. While the process can be complicated, there is a solution.
At Galanti & Copenhaver, we take the time to provide you an individualized experience by assessing your unique situation. Our dedicated team of professionals understands that circumstances can differ from family to family, meaning you need to rely on experienced experts that know how to navigate the estate planning process. Call today to schedule an initial consultation.
