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Special Needs Planning

Learn why Special Needs Planning is so important

Families of children with special needs face specific estate planning challenges that must be very carefully addressed. Parents, grandparents and other family members can ensure or contribute to the support of a special needs person by creating a special needs trust.

Special needs persons include those with disabilities, developmental delays such as autism, those who have suffered a devastating personal injury, and those suffering from mental illness. These individuals may not be able to support themselves and may need to rely upon government benefits such as Supplemental Security Income (SSI) and Medi-Cal.

A special needs trust allows parents, grandparents or other family members to set aside money or other assets to provide for the special needs person without disqualifying them from these important government programs. Special needs trusts can be used for lifetime giving or for inheritances. If you have a child or other loved one with special needs, you may want work with a qualified attorney to establish and administer a special needs trust.

A special needs trust (SNT) is an estate planning tool that can help you provide for the needs of an individual who is disabled without jeopardizing his or her eligibility for government benefits. Sometimes also referred to as a supplemental needs trust, an SNT is a legal vehicle enabling assets to be held on behalf of someone with disabilities without affecting their eligibility for means-tested public benefits such as Medicaid or Supplemental Security Income. While assets held by the trust are not “countable” for the purpose of qualifying for such programs, there are strict regulations regarding disbursements. SNTs are meant to supplement the funds and services available through government programs.


Why establish a special needs trust?

Unlike other types of trusts often used in estate planning, the primary goal of a special needs trust is to provide for the needs of an individual who is disabled throughout his or her life. Federal and state benefits are generally available to qualifying children and adults who have special needs.

If your child qualifies for government benefits, one of your goals may be to ensure that his or her eligibility continues into the future. A special needs trust can help you attain this goal. In addition, this type of trust can provide for supplementary care and services for your loved one.

What is a trustee?

A trustee is a person or institution selected to administer a trust and manage its assets. The trustee’s role is to adhere to the terms of the trust document and fulfill its objectives. You may wish to name yourself or another family member as trustee of the special needs trust, or you may wish to name a professional trustee. Another option is to name a family member and a professional trustee as co-trustees.

What responsibilities does a trustee have?

Administering a special needs trust is considerably more complicated than managing most other trusts. The trustee is responsible for investing funds, making disbursements, paying taxes and maintaining detailed accounts. This requires an understanding of government programs, including the strict regulations that govern the use of SNT assets. Improper use of funds can disqualify the special needs beneficiary from receiving important means-tested public benefits.

In addition to handling all technical requirements, the trustee should also have a deep appreciation for the beneficiary’s needs and desires so that the trust is used to do the most to ensure his or her quality of life.

What is a first party special needs trust?

A first party, or self-settled, SNT is created with assets belonging to an individual with disabilities, who then also becomes the “beneficiary.” This type of SNT is most often created in connection with a personal injury settlement or unanticipated inheritance. The special needs person must be younger than 65 at the time that the trust is established. Any funds remaining in the trust when the beneficiary dies must be used to reimburse Medi-Cal for services that were provided to that individual. Only once that repayment has been made can the remaining funds be distributed to anyone else.

What is a third party special needs trust?

A third party special needs trust is created with assets provided by parents, other relatives or friends of the beneficiary. Such a trust can be created and funded during the life of the person who is providing the assets, who is also known as the grantor. This model is known as an “inter vivos trust”. The trust can also be created as part of a last will and testament, which is then called a “testamentary trust”. Unlike with a first party SNT, when funds belonging to a third party are put into a trust for the special needs beneficiary, on the death of the special needs beneficiary, there is no requirement to use residual funds to reimburse Medi-Cal for services provided to the individual, and “remainder” beneficiaries may be named to receive the remaining assets.

What is a pooled special needs trust?

A pooled SNT is often a practical alternative for small estates. In this case a nonprofit corporation or other service provider manages sub-accounts belonging to many beneficiaries as a single entity. Since many financial institutions do not handle small SNTs or charge high fees, this model allows small estates access to highly skilled trustees To manage the assets of the SNT. Funds that remain when the special needs person dies are typically divided between Medi-Cal and the nonprofit corporation that operates the pooled trust. For a list of pooled trusts, organized by state, click here.

What is an ABLE Account?

In late 2014, Congress passed the Achieving a Better Life Experience (ABLE) Act, which authorizes states to create tax-free savings accounts that can be used to pay for disability-related expenses without affecting an individual’s eligibility for means-tested government programs. To hold an ABLE account, an individual’s disability must have occurred prior to age 26. Most ABLE programs allow eligible individuals to participate regardless of their state of residence.

Only one ABLE Act account can be established per individual, but there is no limitation on the number of individuals who can contribute to that one account. Total contributions for the benefit of a given ABLE Act beneficiary cannot exceed $14,000 in a single year — which is equivalent to the maximum federal gift tax exclusion ($14,000 in 2017).

If the ABLE Act account exceeds $100,000, the participant will lose eligibility for Supplemental Security Income (SSI). Medi-Cal eligibility continues until the account exceeds the limit for the College Savings 529 Plan in the state sponsoring the ABLE program ($250,000 to $450,000 in 2017).

How is a special needs trust typically funded?

In many cases, a special needs trust is established, but not funded, while the parent or other creator is alive. Upon the parent’s death, his or her will transfers the special needs child’s portion of an inheritance to the special needs trust. The trust (instead of the child) can also be designated as the beneficiary of various assets, such as employee benefits and life insurance policies.

Typically, a special needs trust is funded using: life insurance, cash (including gifts from relatives), investments (e.g., stocks, bonds), retirement plan benefits (e.g., pension benefits, IRA funds, 401(k) assets), personal and real property or proceeds from a personal injury settlement (applies to self-settled trusts). This is why special needs planning is so important as it encompasses a lot of areas some may overlook.

How do special needs trusts impact Medi-Cal eligibility?

Medi-Cal is a joint federal-state program that provides medical assistance to those who are disabled and can demonstrate financial need. To qualify, children and adults’ monthly income and the value of their other assets must fall below certain limits.

In determining eligibility for Medi-Cal, the state may count only the income and assets that are legally available to the applicant. A special needs trust restricts the beneficiary’s own direct access to the assets in the trust to such an extent that the assets are not considered legally available to the beneficiary, and therefore, a special needs trust can protect Medi-Cal eligibility.

What about Supplemental Security Income (SSI)?

Children and adults with special needs who have limited income and resources often receive monthly benefits from Supplemental Security Income (SSI). These cash benefits can be used for basic needs such as housing and food. But because SSI benefits are need-based, inheriting money can mean that a child with special needs will lose his or her eligibility for this benefit program.

By naming a special needs trust as your beneficiary instead of your child, however, assets can be devoted to the care of your loved one without jeopardizing SSI eligibility. In addition, since SSI recipients are normally automatically eligible for Medi-Cal benefits, preserving your child’s eligibility for SSI may preserve his or her eligibility for Medi-Cal as well.

Can I use a special needs trust to provide care and services beyond those available through Medi-Cal?

A special needs trust can be especially useful if you want to provide care and services necessary for your child’s wellbeing, without supplanting Medi-Cal benefits. Although Medi-Cal pays for a number of medical costs, including hospital bills, physician services, and long-term care, it will not subsidize items and services considered nonessential. These may include health-related expenses such as eyeglasses, dental care, rehabilitation services, and home health aide services, as well as personal expenses such as transportation, computer equipment, and vacations.

To ensure that trust assets are unavailable to the beneficiary, the special needs trust trustee must have sole discretion over the distribution of trust income and principal. The beneficiary can have no control over the trust, and no right to demand distributions from the trust. The trustee purchases goods and services directly on the beneficiary’s behalf, instead of giving the beneficiary money from the trust to purchase items needed

What is a letter of intent?

If you set up a special needs trust through your will, you might also want to draft a letter of intent to describe how you want your child to be cared for after you’re gone. Although it’s not a legal document, a letter of intent can provide important information to guardians, trustees, family members, and others involved in the care of your child.

The letter may address such issues as your child’s medical needs, daily routine, interests, likes and dislikes, religious practices, living arrangements, social activities, behavior management, and degree of self-sufficiency. Such a letter can prove invaluable to your child’s care givers and can also make the transition to a new living situation as smooth as possible for your child.

Why is it best to inform other family members?

Special needs planning is complicated and it’s advisable to explain to siblings or other family members why you’re setting up the special needs trust. Although siblings might expect to receive equal inheritances, more resources will probably need to be set aside for the benefit of your child with special needs. Explanations and clear directions now may help avoid family conflicts later.

What if laws change?

Flexibility to address changes in the law or changes in the beneficiary’s circumstances must also be built into the special needs trust.

Do I need to work with a qualified attorney and financial advisor?

Special needs planning is complex and technical, and the laws that govern special needs trusts differ from state to state. To properly execute special needs planning for your child’s future, work with a qualified attorney and financial advisor who have experience with the planning needs of families of individuals with disabilities. These advisors should also have a thorough understanding of the income, gift, and estate tax consequences that must be considered when funding and administering a special needs trust.

Every special needs trust must be customized to meet the unique requirements of the special needs person and the family creating the trust. We can assist you with creating a special needs trust that will provide a comfortable life for your disabled family member.

Planning for a Lifetime of Needs

Families of children and persons with special needs face unique estate planning challenges that must be addressed with extra thought and care.

Because a special needs person may not be able to support themselves, they will rely on government benefits such as Supplemental Security Income (SSI) and Medi-Cal. However, it’s important to understand that there may be things that those benefits don’t cover. A vital tool used to protect those benefits and extend support beyond their reach is a special needs trust.

special needs trust allows parents, grandparents, or other family members to set aside money or other assets to provide for the special needs person without disqualifying them from these critical government programs. Special needs trusts can be used for lifetime giving or for inheritances. If you have a child or other loved one with special needs, you may want to work with a qualified attorney to establish and administer a special needs trust.

To highlight the importance of this planning, we have developed this page filled with tips, strategies, and expert advice on implementing the right special needs plan for yourself or a loved one. If you have any questions or need help getting started, schedule a free discovery call and let’s discuss your specific planning needs.

Reference Guide 5

Special Needs – Letter of Intent

As a parent of a child with special needs, you may want to consider drafting a Letter of Intent as a companion piece to a special needs trust. This document can be critical in ensuring that your trustees and caregivers understand your child’s interests, routines, abilities, and hopes, and wishes for their future and well being. Download our free Letter of Intent tool to help you get started.



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