Estate Planning – Special Needs Trusts (SNT)
For a family with a disabled child, estate planning usually involves providing for that child’s needs without endangering eligibility for government benefits. This adds yet another variable-disability law and government entitlement programs-to an already complex equation. As with all estate planning, each family’s situation will determine the best options and whether a Supplemental Needs Trust is appropriate for them. They are separate from irrevocable trusts and living trusts.
Government assistance comes in the following forms:
Social Security: The child may be eligible if he or she has worked enough; otherwise, eligibility for the child begins only after the parents’ death, disability, or retirement;
Medicare: In general, if the child could qualify for Social Security, he or she should qualify for Medicare also;
SSI: This is the most common benefit for disabled children, providing a minimum level of monthly income.
Medicaid: In most states, a disabled child who qualifies for SSI will qualify for Medicaid, subject to an income test and an asset test.
Often, parents make outright bequests to their children in equal shares, but this may be detrimental for a disabled child. An inheritance could disqualify him or her for government assistance or could even subject him or her to back charges. Also, the same effect may result if the child is the beneficiary or owner of a life insurance policy or retirement plan, or if he or she holds joint accounts.
A trust provides a much safer vehicle for providing funds to care for a disabled heir. The trust, while making its assets available for the child’s care, will also protect those assets from the claims of creditors and should, if drafted properly, allow the child to continue to qualify for governmental assistance. Some common types of trusts used to this end include:
Funds are never given directly to the beneficiary. This would interfere with the assets and income test for Medicaid and SSI. Goods and services can be bought on the individual’s behalf, though. This makes it similar to a spendthrift trust in that respect. Examples of such expenditures are vehicles, education, personal care attendants, furniture and medical expenses. This structure allows your loved one to still qualify for government aid while enjoying the benefit of the assets you have set aside for him or her. A second benefit is that by avoiding making the cash available in its entirety there is less risk of a financial mistake or miscalculation
Mandatory Support Trusts, which are required to pay the beneficiary a certain amount of income or principal to maintain a set standard of living;
Discretionary Support Trusts, which allow the trustees to distribute, by their own discretion, income or principal for the beneficiary’s care; and
Community Trusts, which pool assets for the benefit of a group of disabled individuals, offering life-long care in return for funding of the trust.
Each type of trust has its own strengths and weaknesses. Be sure to contact an attorney who specializes in this field if you or your clients have questions about estate planning for families with disabled children, mandatory support trusts and special needs trusts.