Special Needs Trusts Can Protect Those Most Vulnerable
The Special Needs Trust (also known as a Supplemental Needs Trust) or “SNT” is a special kind of trust that allows assets to be held for the benefit of a disabled or special needs child or adult, without making the beneficiary ineligible for government benefits. Why you need an SNT if you die intestate If you died without a Will, your assets would pass automatically under the State’s inheritance laws to your spouse and your children, including your special needs child. If you died and had no spouse, all your assets would pass to your children, including your special needs child. As you know, government benefits such as SSI and Medicaid, have financial eligibility limits. But those assets that would pass to the special needs child are so-called “countable resources”. In other words, they are assets that the government counts against the recipient of government benefits when his or her eligibility for those benefits is calculated. That means that, as soon as those assets pass to your special needs child, he or she would be ineligible for government benefits, including SSI and Medicaid. And, until the assets your child inherited are spent down to Medicaid eligibility levels, your child would have to private pay for his or her care. In effect, the assets you left to your special needs child would be wasted — used to pay for benefits the child would have otherwise received free from the government — until the child was once again impoverished and stripped of those assets via spend down, before benefits could once again be received by him or her. Wouldn’t it be a shame to end up with such an outcome? Yet this situation is avoidable. The government has expressly authorized the SNT, a kind of trust specifically intended to hold assets for the benefit of a disabled or special needs individual which provides that government benefits will be not be replaced or supplanted — i.e., that the recipient may have both the benefit of the assets in the Trust, and the government benefits to which he or she would otherwise be entitled. What if you had a Will? Even if you had a Will — or even a trust, if not set up properly as an SNT — the assets that passed to your special needs child would be countable and create Medicaid ineligibility. Assets can pass outside a Will or trust to your special needs child through a variety of ways: for example, as a beneficiary named in a life insurance policy, or an in-trust-for account, or any other POD or “payable on death” clause. Assets can also pass to your special needs child via an improperly drafted Will or trust. Can I Set Up an SNT Now, or Is It Something Created By My Will After My Death? Just like other trusts, the SNT can be created during your lifetime, with an inter vivos trust agreement, or through your Will, as a testamentary trust. What are Common Mistakes People Make in Special Needs Planning? One common mistake is the decision to disinherit the special needs child. This approach does work, of course, but leaves the child that needs help the most in the most vulnerable position. Your other children may get to go to college, may build their own careers, etc., but your special needs child may not have these opportunities and needs the extra help this valuable tool could give. Closely related is relying on your other children to take care of their special needs sibling. First of all, assets left to another child are subject to all of the problems that child might have, for example: divorce, judgments, and their own personal and financial problems — even illness, disability and death. They may be well intentioned, but money may be tight and their priorities may be different from what you had in mind. Furthermore, people may spend, lose, or tie up the money in businesses and investments. All of this leaves the special needs child vulnerable and subject to the whims and fortunes of some one else’s life. Failing to actually fund the Trust is another mistake. All the planning in the world will not do you any good if assets end up going somewhere other than the Trust. You must be careful — and aware — of how your assets will pass upon your death. For example: be mindful of how your Will leaves assets; your beneficiary designations on accounts, life insurance policies, retirement accounts, savings bonds and other assets, must funnel assets to the plan; assets that pass outside the Will cannot pass directly to the special needs person or otherwise circumvent (and therefore foil) the plan. Another common mistake is the failure to provide for the privacy of the special needs child. Keep in mind that an inter vivos trust is a private document, whose terms need not be known to anyone not directly involved with the situation. Wills are public records, whose terms are readily available to other family members, outsiders, even the outright curious stranger. Is There Any Advantage to Setting Up an Inter Vivos SNT? Setting up an inter vivos SNT allows it to be in place right away — imagine a situation where probate takes a while, is delayed, or is even contested. The creation of an inter vivos SNT allows for money (e.g., the proceeds of an insurance policy) to go directly and quickly into it and be available for your special needs child right away — not waiting for the eventual probate of a Will and all the steps and uncertainty related to that. Conclusion By leaving assets into an SNT for a special needs individual, you can avoid rendering the person ineligible for government benefits, you can avoid spend down of those assets, you can avoid “estate recovery” whereby the State seeks reimbursement for the benefits paid against the beneficiary’s assets or estate. Instead, the special needs individual can enjoy both the benefits of the assets that are left to him or her, and the government benefits to which he or she would be entitled as well. Disclaimer: This is a general discussion. Your specific circumstances can greatly affect the analysis. Consult a knowledgeable Elder Law Attorney regarding your particular situation.