Planning for a Family Member with Special Needs

Caring for a loved one with special needs during your life may be one of the most important jobs you have, but it is equally important to continue to care for your loved after you are gone.  Since so many disabled individuals receive some kind of government benefits, it is imperative to ensure that these benefits continue, even if they receive an inheritance. This protection can be ensured by creating a Supplemental Needs Trust or Special Needs Trust (“SNT”) for the benefit of the disabled beneficiary.

The SNT is an irrevocable trust designed to provide benefits to, and protect the assets of, physically disabled or mentally disabled persons. The SNT allows such persons to be qualified for and receive Supplemental Security Income and governmental health care benefits, such as long-term nursing or home care benefits through Medicaid.  While there are several different types of SNTs, this article will discuss the two most popular, the first-party SNT and the third-party SNT.

A first-party SNT is funded with assets of the disabled individual who is under the age of sixty-five, and may only be created by a parent, grandparent, or legal guardian of the disabled person.  The court also has the power to create a first-party SNT for a disabled individual. These trusts are often used where an individual suffers a disability from an accident or medical malpractice and receives an award as a result of a lawsuit. A first-party SNT is also an appropriate planning tool where an individual has his or her own money at the time of the onset of a disability or where he receives an inheritance.   Monies deposited into these trusts can be used to enhance the quality of life of the disabled individual by covering the cost of any expense which would not otherwise be covered by Medicaid.  It is important to note that a properly drafted, valid first-party SNT must include what is commonly known as a “payback” provision.   This provision dictates that any monies that remain in the trust at the time of the disabled individual’s death must be paid to the state in an amount equal to the medical assistance paid on behalf of the individual.  Should there be any monies left over after the payback, those monies will be paid to the remainder beneficiaries in accordance with the terms of the trust.

A third-party SNT is funded with the monies of someone other than the disabled beneficiary. Some clients come to our office with the mistaken belief that the only way to ensure that their disabled child will continue to receive benefits at the time of their parents’ death is to disinherit them for fear that an inheritance will place their disabled child above the asset threshold and income levels. This is simply not the case. A third-party SNT created for the benefit of a disabled individual not only provides the family a way to include their disabled child in their estate plan, but can also provide the disabled individual with an enhanced quality of life.  The assets in the trust can be used to provide the disabled individual with comforts they would otherwise not be able to afford.  Because these trusts are set up with the funds of a third-party, unlike the first-party SNT, they do not have a payback provision. Upon the death of the original beneficiary of the trust, whatever assets remain in the trust are distributed in accordance with the wishes of the trust’s creator.

In sum, Supplemental Needs Trusts can be an invaluable planning tool for those who have a loved one with a disability.  The ability to create and fund a SNT for a loved one protects government benefits while ensuring an enhanced quality of life for a disabled individual.

   – Nancy Burner, Esq.

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Burner Prudenti Law, P.C.

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