Parents and caretakers of children and the elderly with special needs are faced with daily challenges which make it difficult to do much in the way of planning or preparing for the future. The “take-it-one-day-at-a-time” approach may work most of the time. However, experts say parents of special needs children or the elderly should pause to consider what may happen to the child if something happens to them.
With increasing life spans among disabled people, odds are good that many of these children will survive their parents. There are three ways to set up a Special Needs Trust:
- Medicaid is the Federal program administered by the states which provides health care for those that can’t afford it. See 42 U.S.C. § 1396 et seq. This may vary from state to state, but there are also mandatory Federal law provisions.
- A Special Needs Trust funded by parents or other third party sources will not be required to pay back Medicaid.
If you are the Trustee for a disabled loved one, it does not necessarily mean that you are their Guardian. Make sure that if that is the intent that the proper paperwork is drafted
Services
- Testamentary Trust. This adds language to your existing living trust that states when deceased, a proportionate share would go to the special needs trust, verses directly to the child. You keep the assets in your estate until deceased, at which time the trust is funded. This is the simplest method of protecting your loved one.
- “Stand-Alone” Special Needs Trust. A trust is setup now, rather than after you pass, and the trust is managed separate and apart from your living trust and other assets. If you are willing to have the value of the trust included by the IRS as a part of your estate when you die (and thus being subject to estate taxes), then you can set the trust up as a revocable trust, and you can serve as the trustee.
- “Stand-Alone” Irrevocable Special Needs Trust. This trust accomplishes both the goal of setting aside assets for your loved one now, rather than after you pass, but also can remove the assets from your taxable estate. This allows you to also lower the estate taxes on your estate after you pass. The difference between this and Stand Alone is you cannot be the Trustee. You cannot reserve the right to revoke or amend the trust.
Specialization
Only professionals that specifically handle Special Needs Trusts (aka Supplemental Needs Trusts) should be hired to draft this type of legal document for a loved one. Unless properly worded, the government and benefits agencies can access these funds.
The attorney should have a vast background in estate planning, disability laws, navigating Medicaid, Guardianships/Conservatorships, and Elder Law. If dealing with a firm or financial institution that specializes in Special Needs Trusts, make sure to check that attorneys are on staff.
Preparation
Make sure all paperwork is in order as to the degree of disability, and the Long Term Plan that is in place. This includes:
- How will the Special Needs Trust be funded?
- Are you the established Guardian or Power of Attorney? Have documents ready.
- What is the long term prognosis?
- Have you drafted a will or living trust?
- Do you have a “Life Care Plan?”
- Provide a list of all needs including medications and special requirements.
Evaluation
- Research the attorney’s experience; is he/she a specialist in Special Needs Trusts?
- How well versed in disability benefits, SSI, Medicaid, wills, trusts, and estate planning?
Know about pricing:
- Hourly rates
- Are paralegals substituted when appropriate
- Describe all piece-meal charges
- Will they provide a complimentary consultation hour?
- Ask for several references to determine:
- Was the level of communication satisfactory?
- Was the desired outcome positive?
- Would you hire this person again?
Special Needs Trusts Articles
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Special Needs Trusts Radio Show Segments
- Special Needs Trusts: Plans and Considerations
Elder law attorney Andrea Lee from Legacy Estate Planning joins Suzanne to talk more about special needs trusts, comparing first party special needs trusts and third party special needs trusts.
Andrea provides an example of a third party special needs trust: “Let’s say I am a parent of a disabled child, and my disabled child does not have assets. Maybe they’re on Medicaid, maybe I support them, but they don’t have their own money. I might draft a will, and in my will give my two healthy kids their distribution outright, and then for my disabled child, I in my will might create a special needs trust, using my money for that disabled child because that money never belonged to that disabled child. It was my money and I’m putting it in a trust for that child. That would allow that child to continue accessing Medicaid, continue accessing long term care, continuing accessing Social Security without having to spend that money down.
“Now, that’s one use of the special needs trusts. But as an elder law attorney, we most frequently use them when we have a married couple, and sometimes we even use them when they’re both healthy, but we almost always use them if we have a married couple, and one spouse is incapacitated.
“My mom was diagnosed with dementia in 2014. My dad was very healthy. And when my mom was diagnosed, we faced the reality that, as long as my dad was alive, as an elder law attorney, I could use my resources and my knowledge and my skills to help preserve most of my parents money. And I could do that by making sure my parents have a valid estate plan, transferring assets to my dad, moving some things around, maybe just creating a great plan to preserve assets.
“But even though my mom was the one with dementia, there was the possibility that my dad could die first. I mean, he could have a stroke. He could be in a car accident. So when we have a married couple, what we frequently will do is we will impoverish the incapacitated spouse, enrich the healthy spouse, and then in that healthy spouse’s will, we would create a special needs trust. So in my parents’ situation, if my dad happened to have died first, the house that he lived in would go into that trust. The retired accounts would go into that trust, their families would go into that trust so that my mom could receive long-term-care benefits, and all that money could be preserved and help supplement what Medicaid does not cover. So that’s a type of special needs trust that can be used by married couples to ensure they never have to spend all of their money down in order to qualify or to keep a spouse on Medicaid benefits for, among other Social Security type of benefits.”
Learn more:
Check out our affiliate podcast Alzheimer’s Speaks
- Do You Need a Special Needs Trust?
So many of us have a loved one that may have special needs, a disability. Maybe a spouse has just been diagnosed with dementia and needs care, and they’re afraid of losing their house or their money. If you’re in that situation, or maybe your parents are, or a child that has special needs, this episode will be important. Elder law attorney Andrea Lee from Legacy Estate Planning joins Suzanne to talk about special needs trusts and how people can protect their own resources.
Andrea explains, “A first party special needs trust is a special needs trust that is created using an individual’s own resources. They’re the least popular… An individual might use a special needs trusts under the following circumstances. Let’s say they were perfectly healthy, but they were in a car accident and they suffered a traumatic brain injury and now they need assistance for long term care benefits, like Medicaid or VA, or they’re accessing Social Security. But they can’t access those benefits because they have their own money. Maybe they’ve successfully were employed or maybe they had an inheritance… If it’s an individual’s own money, we then have to create what’s called a first party special needs trust, where we use the assets of that individual to create that special needs trust. They do have a lot of limitations, so we don’t use them as often as the other type of special needs trusts… The applicant has to be under the age of 65… and it must have a Medicaid payback.
“I practice in the state of Washington, and even though special needs trusts are created based on a federal law and special needs, trusts exist in all 50 states. And the way each state’s interprets and treats those special needs trusts is different. So even though I can talk about special needs trusts in the broadest terms, if somebody is really interested in talking about how special trusts could serve them individually, they really need to meet with an elder law attorney in the state where they reside, because that elder law attorney can formulate a fantastic estate plan that will protect their assets, allow them to not lose their house, that will allow them to preserve some of their assets. And there’s a lot of ways that we can preserve assets for a married couple, and allowing them to not become destitute, just because of a terrible diagnosis.
“Most of my clients are much better served with what we call a third party special needs trust… The third party special needs trust is a trust that’s created with the assets of a non-applicant… They can choose the trustee. They cannot be their own trustee, but they could choose a trusted child. They could choose a professional organization. That money is protected, and it’s used to provide good quality of life quality for the beneficiary.”
Learn more:
Check out our affiliate podcast Alzheimer’s Speaks
