Provide for a disabled loved one and protect access to programs

Loved ones with special needs often are lucky enough to have loving parents and other family members who want nothing but the best for them. During childhood and into adulthood these individuals often participate in programs funded by Medicaid and receive Supplemental Security Income benefits.

Leaving assets directly to a mentally or physically disabled child, grandchild or other family member could deny them access to those benefits or programs. In order to continue qualifying for Medicaid-funded programs, they can currently own no more than $2,000 in assets ($3,000 if married).

This makes your estate planning particularly problematic if you want to provide for a disabled loved one. Fortunately, a special needs trust, also called a supplemental needs trust, holds the answer.

Why would I need a special needs trust?

Every trust holds assets on behalf of a beneficiary, but when it comes to a disabled individual, certain language and provisions must be present in order to preserve your loved one's access to benefits and programs. Your loved one will not use the assets in the trust for support. Instead, they will be used to supplement benefits already being received.

When you create the trust, it needs to include language that makes this crucial distinction clear. In fact, the language can specify that distributions only take place after considering governmental and other benefits received now or in the future.

Two types of supplemental needs trusts exist.

  • Third party: You and others create these trusts on behalf of the disabled individual. When the beneficiary passes away, an alternate beneficiary receives any remaining assets not distributed at the time of death. Contributions to the trust are unlimited.
  • Self-settled: In some cases, the disabled individual receives proceeds from a personal injury claim or some other litigation. Upon death, any remaining assets go toward repaying Medicaid. Other heirs receive any surplus assets thereafter. Any unpaid debt does not survive the death of your loved one.

In either case, distributions cover expenses and other luxuries for your loved one which Medicaid or SSI fail to pay. The assets in the trust do not count for benefit or program eligibility purposes, but often make life more comfortable for the beneficiary. As with any other trust, creditors, family members and others cannot reach the assets in the trust.

Due to the importance and complexity of these trusts, you should more than likely refrain from attempting to create a special needs trust alone. An estate-planning attorney provides knowledge, compassion and answers that you need in order to ensure that your disabled loved one receives everything he or she needs to live a good life.

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