Long-Term Planning for Persons with Special Needs

Having a special needs child or grandchild presents distinctly different challenges for all concerned. The child will need a lifetime of care or some type of assistance and will be eligible for public benefits in many cases. To provide for your child or grandchild, meet with a trusts and estates lawyer to discuss what measures can be taken.

Provide a Special Needs Trust

Trusts are instruments in which certain assets are deposited or transferred to and are controlled by another person, called a trustee, for the benefit of another person, called a beneficiary. Ownership of the assets within the trust are owned by the trust, though as trustee you can control the assets if you created it during your life as an inter vivos trust. If created at your death as in a will, it is an irrevocable trust with a trustee as designated by you.

A special needs trust is designed to provide for the needs of the beneficiary who generally lacks the cognitive or mental capacity to manage his or her own affairs. Because most special needs individuals receive some type of public benefit, the state and federal government will terminate these benefits if the beneficiary has sufficient income or is receiving payments from a different source. However, any assets in a special needs trust can be distributed for the benefit of the beneficiary without forfeiting these benefits so long as certain conditions are met. The reason why receipt of trust benefits does not jeopardize public assistance is because the funds are totally controlled by the trustee.

Types of Special Needs Trusts

Special needs trusts are of two types—third party special needs trust and self-settled special needs trust.

A third party trust is created by you in your will or during your lifetime. It uses the parents’ assets to fund the trust.

A self-settled trust is used if funded by the beneficiary’s own assets. (a/k/a First Party Trust) Any assets remaining in the trust after the beneficiary passes away, however, must be paid to the state if the First Party had been receiveing public benefits.

Power of the Trustee

The trustee’s power is absolute. He or she can deny any request by the beneficiary, no matter if it is entirely reasonable, though that is not the point of the trust. If you set up a special needs trust, be careful about who the trustee will be or it has a significant chance of failing.

Financial Duties

The trustee needs to make investments so the trust funds can grow as this is part of the discretionary nature of the trust. This requires someone with investment experience and training to ensure that investments are diversified and in a properly balanced portfolio. This is part of the fiduciary duty of the trustee.

Personal Needs and Advocacy

Appoint a trustee who will be an advocate for the special needs beneficiary’s medical and other needs. This may mean intervening if the person is not being cared for adequately at a care or assisted living facility and making sure the individual is receiving the services required.

Trust Protector

Keeping the trustee accountable is essential. Also, if the beneficiary is quite young, conditions will be different when he or she becomes middle-aged and older. A Trust Protector can be appointed, which can also consist of a committee of family and professionals, with the authority to amend the trust to keep it viable and to replace the trustee if the beneficiary’s needs are not being met or is otherwise incompetent.

Distribution of Assets

Funds or other assets from the trust cannot be made directly to the beneficiary or the payments are counted towards Medicare and other public benefits’ eligibility. Instead, the trustee purchases services and goods such as vehicles, physical therapy, exercise equipment, tuition for school, medical expenses and vacations.

Content of the Trust

A special needs trust must have special provisions or the beneficiary may not be considered eligible for programs like Medicare or SSI. These include:

  • That it is intended to provide supplemental and extra care over and above that provided by governmental benefits
  • It is not intended to be a basic support trust
  • A provision pertaining to paying Medicare back
  • Has no estate tax provision or “Crumney provision”
  • Contains special language from the Social Security Operations manual on special needs trusts
  • Refers to the relevant US Code provisions {(42 USC Section 1396p(d)(4)(A)}
  • Explains the exception to the Omnibus Budget and Reconciliation Act

Setting up and administering a special needs trust can be tricky and complex. If not done correctly, your special needs child may lose public benefits and suffer tax consequences, all of which can be avoided if you have your trust established by an experienced and knowledgeable trust attorney like Attorney Patricia Bloom-McDonald who has successfully created special needs trusts that are effective. Knowledge of the law is essential in this area.

Patricia Bloom-McDonald is an estate and trusts attorney with offices in Canton and Westport, practicing in estate planning, real estate, elder and probate law. Consult her today about a special needs trust for your child, grandchild, or other loved one.

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