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If you have a child or other family member with special needs, you can appreciate the importance of diligent planning to look after your loved one. This includes provisions you make as part of your estate plan. Although each estate plan must take into account the planner’s unique circumstances, this is especially critical in special needs cases. Speak with Kallio Law Firm about which tools can help you rest assured that your family member will be cared for.
Considerations for Special Needs Estate Planning
Individuals with special needs often receive government assistance in the form of Supplemental Security Income (SSI) and/or Medicaid. Their parents and other family members may want to leave them an inheritance or provide support, but they have concerns that this would disqualify the recipient from these important programs. Fortunately, certain types of trusts can hold the assets or property that the beneficiary would otherwise receive without making them ineligible for assistance.
There are both first-party special needs trusts and third-party supplemental needs trusts. These two work in different ways, so it is important that you consult an experienced estate planning attorney to better understand how they operate.
What To Know About Special Needs Trusts
A first-party special needs trust is funded with assets that are owned by the beneficiary (the person with special needs). Some of these individuals have sufficient mental competence to establish and fund their own trust. But in other situations, a family member, guardian, or court can create and fund the trust with the beneficiary’s property.
A first-party special needs trust usually must include Medicaid repayment terms. This means that after a beneficiary passes away, any remaining trust funds are sent to Medicaid for reimbursement. If there is any money left over after this, it will be distributed to other beneficiaries who are named in the trust.
These trusts are ideal for situations in which a person owned assets before developing a condition that classified them as a special needs individual. Another scenario is one in which the special needs person received a substantial inheritance or a court settlement (e.g. for medical malpractice). The trust must be irrevocable (meaning it cannot be altered or destroyed once it is created) and the beneficiary must have special needs or a disabling condition and be under the age of 65 when the trust is established.
What To Know About Supplemental Needs Trusts
In contrast to the first-party special needs trust, a third-party supplemental needs trust is funded by someone who is not the beneficiary. In fact, to create this type of trust, it cannot be funded with the beneficiary’s property. An example of a supplemental needs trust is one in which a parent, grandparent, or legal guardian of the individual opens the trust and transfers assets into it.
This type of trust can be revocable or irrevocable, and it may be created as one of the following:
- Stand-alone: A stand-alone trust may be used if relatives plan to support their special needs loved one throughout their lives. Other relatives or friends can contribute funds as well.
- Testamentary: This is a suitable option for someone who wants to leave the trust as an inheritance but not allow the beneficiary to access funds immediately. A testamentary trust is created as part of a last will and testament, which means it is not funded until after the testator (the person who executes the will) dies.
Unlike a first-party special needs trust, there is no requirement to include a Medicaid reimbursement provision in a third-party supplemental needs trust.
How Our Attorney Can Help You
Every estate plan is different because every family is unique. If you wish to provide for your special needs relative, reach out to Kallio Law Firm. We can review the details of the above trusts, explain their differences, and help you select the best option. Once you have chosen which type of trust you want we can counsel you in choosing a trustee and ensure your trust paperwork complies with all applicable laws and regulations. Give us a call today to get started.
