Leaving assets to a family member with special needs adds complexity to a client’s estate plan. Individuals with special needs may be eligible for governmental or charitable benefits. Leaving that individual an inheritance can disrupt or terminate those benefits. That said, with a properly drafted estate plan, you can leave assets to an individual with special needs without affecting any benefits that they may be receiving. This is commonly accomplished through the use of Special Needs Trusts. Special Needs Trusts (sometimes referred to as Supplemental Needs Trusts) direct the Trustee to use trust funds for the supplemental needs of the beneficiary. Because the individual’s governmental or charitable benefits are used for primary needs (food, clothing and shelter), a trust for supplemental needs will not affect the individual’s eligibility for governmental or charitable benefits.
Third party Special Needs Trusts and First party Special Needs Trusts.
A first party Special Needs Trust is funded with assets belonging to an individual with special needs. That individual can benefit from the trust over and above any governmental or charitable benefits that the individual may be receiving. However, because the trust contains the special needs individual’s own assets, this type of trust must contain a “payback” provision. This provision states that, upon the death of the special needs individual, any remaining trust property must be used to pay Medicaid back for any benefits received by the special needs individual during his or her life.
A third-party Special Needs Trust is often funded by parents, grandparents and other family members (rather than by assets that belong to the special needs individual). Because the trust funds never belong to the special needs individual directly, they can be used for his or her benefit over and above any governmental benefits that the individual may be receiving. Upon the beneficiary’s death, the assets pass to the remaining beneficiaries outlined in the trust.
Drafting Special Needs Trusts
Administering Special Needs Trusts
Applying for guardianship and/or conservatorship of individuals with special needs