Q&A- Special Needs Estate Planning

Q.- What is a Special (also called Supplemental) Needs Trust (“SNT”) and when do I need it?

A.- Various government benefits like Medicaid, SSI cash payments, housing subsidies, mental health care, and Department of Social Services (DSS) group home or other housing are provided free, or at minimal cost, to disabled people, who have little or no money. Whether paid directly to a disabled person, or into an ordinary trust, most gifts and inheritances and accident, workers compensation, divorce, and other litigation recoveries jeopardize government aid and even may have to repay prior benefits. However, these amounts won’t disqualify a disabled person for government aid, if they are paid into an SNT, for the disabled person, instead of being paid directly, or an ordinary trust. Thus, an SNT should be part of the estate plan of every parent and grandparent of anyone who may be too disabled to work. A SNT should be created, even if your loved one doesn’t yet receive benefits, because government aid may be needed later, especially, if disabilities worsen with age. Also, many children can’t qualify for disability aid until age eighteen.

Q.- Why do I Need a Special Needs Trust to Protect Divorce and Personal Injury Recoveries?

A.- A divorce settlement may jeopardize SSI, Medicaid and other benefits unless alimony and child support are paid into a Special Needs Trust. A disabled person who has a personal injury claim, divorce award, or worker compensation recovery should ask his lawyer to arrange for an SNT before the claim is resolved. Don’t rely on your attorney to provide for an SNT, as many general attorneys aren’t familiar with this area of the law.

Q.- How Can a Special Needs Trust Minimize DSS & Mental Health Fees & Liens?

A.- Government agencies may recoup the cost of some public benefits (e.g. group home and other residential placements and certain mental health care) from a gift, inheritance, or other amount payable to a disabled person or an ordinary trust for a disabled person. In contrast, gifts and inheritances payable to a well designed Special Needs Trust need not repay public benefits. Consequently, dying without a will or leaving amounts to a disabled son or daughter outright or through an ordinary trust, may be equivalent to leaving your estate to the Government.

Q.- Why do I Need a Special Needs Trust Even If My Disabled Child Lives at Home?

A.- Even though your disabled child lives with you now, he or she eventually may be placed in a DSS or mental health placement or otherwise require long term care. Consequently, your estate may be forced to fund group home, medical, and other costs that would be covered by government programs if your estate plan included a Special Needs Trust.

Q.- When and How do I Set Up a Special Needs Trust?

A.- To create a Special Needs Trust, you typically sign a written trust instrument when you sign your will. Although you don't have to fund your SNT until you pass away, you must sign the trust instrument during your life time. If you don't, your child will face substantial costs, which wouldn't arise if an SNT were in place when you die. Because an SNT must comply with complex and arcane government benefit rules, an SNT should only be drafted by a lawyer familiar with SSI, Medicaid, DSS and other government program rules.

Q.- How Can Special Needs Trusts Reduce Costs If I Need Nursing Home Care?

A.- Medicaid generally pays nursing home costs for people with minimal resources except that a temporary Medicaid disqualification period usually applies to a person who makes gifts to reduce resources to Medicaid limits. However, an individual may qualify for Medicaid immediately by making gifts to a “sole benefit” SNT. Gifts to a “sole benefit” SNT are exempt from gift disqualification penalties and also avoid jeopardizing the SNT beneficiary’s government aid. A “sole benefit” SNT must satisfy special rules not applicable to ordinary SNTs.