While there are different avenues to taking care of a special needs individual, when contemplating estate planning, a special needs trust is often the best option. Special needs trusts protect special needs individuals from losing out on government funding due to means-based asset tests by putting additional assets into a trust that won’t be counted against them. These funds can be used for things like, “education expenses, a vacation or hobbies”, according to an article on Special Needs Answers, “What Is a ‘First-Party’ Special Needs Trust and When Is It Useful?”. Since government benefits are often crucial for a special needs individual, these trusts are an important way to ensure access to those benefits.
There are three types of special needs trusts: pooled, third-party and first-party. While there are commonalities between most special needs trusts, there are a few things unique to a first-party special needs trust. A few are:
- A first-party special needs trust is irrevocable, meaning it cannot be modified or terminated unless approved by the beneficiary;
- The assets must be owned by the special needs beneficiary;
- The trust can be established by a parent, guardian, another third party, or the special needs individual themselves (as long as they are competent), but they must be under 65 when establishing the trust;
- The Department of Medicaid must be reimbursed from the remaining trust assets at the beneficiary’s death for any expenses covered by the Department.
First-party special needs trusts are especially helpful if a special needs individual is coming into an inheritance or a settlement from a lawsuit or divorce. They can help ensure an unanticipated influx of assets doesn’t prevent a special needs beneficiary from accessing crucial government benefits.
However, you’ll want to ensure assets going into the trust are aligned correctly. For example, parents of a special needs beneficiary who want the proceeds of a life insurance policy to benefit their special needs child will want to ensure they update their beneficiary designation. Double-check that the beneficiary of the policy is the special needs trust, not the special needs individual. Otherwise, this might jeopardize a special needs child’s eligibility for government benefits.
You may also want to hold a Family Care Meeting. This is something we at Family Estate Planning Law Group strongly encourage for our clients, since it gives you an opportunity to outline the planning you’ve done to your family members and loved ones. If you have a special needs child, it’s especially critical to communicate with loved ones about how to give assets to your child. An error could lead to loss of government benefits, so it’s better to speak with everyone now and communicate the plan before it becomes an issue.
Although this is a brief overview of one type of planning for special needs, it’s important to seek advice to ensure your estate plan works for you and your family. Every individual with special needs has different circumstances, so it’s important to explore your options with an experienced estate planning and special needs attorney.
For more information on planning for special needs individuals, explore our website and contact us to schedule your consultation today!
Reference: Special Needs Answers (December 2007) “What Is a ‘First-Party’ Special Needs Trust and When Is It Useful?”