Adult children with disabilities often qualify for government assistance. Some of these assistance programs are needs based. Others are not. Many adult disabled children receive Supplemental Security Income, or “SSI.” Qualification for SSI requires that the child have less than $2,000 in countable resources and have income below guideline levels (in addition to being found to be unable to engage in gainful employment by the Social Security Administration). The maximum SSI benefit will be $721 per month in 2014. While it may seem that the loss of a maximum of $721 per month in income would not be significant in some circumstances (for example, if replaced by an inheritance), many other needs based government assistance programs are tied to eligibility for SSI. For instance, the eligibility for Medicaid coverage for a special needs person is often tied to eligibility for SSI, as is the ability of the child to reside in a group home or some other assisted housing arrangement. For many disabled individuals, the loss of Medicaid coverage would be devastating because they have no other way to obtain health care coverage due to their pre-existing conditions (unfortunately, the Affordable Care Act, or ObamaCare, has done little to remedy this situation at this time).
Unfortunately, many well-meaning relatives of special needs children fail to plan properly and, as a result, the beneficiary child loses his or her needs based government assistance. Upon receipt of an unprotected inheritance, life insurance death benefit, or retirement plan payout, the disabled adult child becomes ineligible for SSI, Medicaid, and related government assistance on which he or she relies. The child is then forced to either: (1) seek assistance through the court in creating a trust to protect his or her assets, (2) placing his or her assets in a “pooled trust,” or (3) spending the inheritance and reapplying for government assistance after his or her inheritance has been depleted.
A parent or other relative that wants to leave an inheritance for a disabled child can avoid disqualifying the child from needs based government assistance by leaving the inheritance in a special needs trust. The trust would be structured as a fully discretionary trust. The trustee can use the income and principal of the trust to pay for goods and services not provided through government assistance. If the beneficiary is receiving SSI, the payment of food or shelter expenses by the trustee can cause a reduction or elimination of the beneficiary’s SSI entitlement amount. Distribution of cash to the disabled beneficiary from the trust also will cause a reduction in benefits. In some circumstances, the benefits derived from the distribution outweigh the loss in benefits, but generally the disabled beneficiary should use his or her SSI to pay for food and shelter expenses and distributions from the special needs trust should be used for other needs. Examples of proper distributions would include distributions for clothing, furniture and furnishings, transportation expenses, specialized classes and other education, adaptive equipment and technology, as well as medical procedures, equipment, and procedures not covered through Medicaid or other government assistance.
The special needs trust can be part of the parent’s estate plan – whether it is a will or a revocable living trust. The special needs trust would come into existence upon the death of the parent. Some parents or relatives want to make lifetime gifts to the disabled person’s special needs trust. In other circumstances, many people, such as parents, grandparents, uncles and aunts, and siblings, want to contribute to the child’s special needs trust – either during their lifetime or upon their death. In this case the special needs trust must be created as a separate document from the parent’s estate plan. As such, any donor who desires to do so can make lifetime gifts to the trust or can name the trust as a beneficiary of a fixed dollar amount or a percentage, up the whole, of his or her estate. The donor can even name the special needs trust as the beneficiary of an IRA or a life insurance policy.
As described above, proper administration of a special needs trust is imperative. An improper distribution by the trustee can cause a reduction or even loss of crucial government assistance. Therefore, it is crucial that the trustee be familiar with the how the various government assistance programs operate and what effect, if any, a distribution from the special needs trust would have on the government assistance being received by its beneficiary. For this reason, a professional trustee, such as an attorney, private fiduciary, bank, or trust company is named as trustee of the special needs trust. Many professionals retain attorneys familiar with these laws and regulations to advise them. It is imperative that, when a family member is named as trustee of a special needs trust, he or she retain an attorney familiar with special needs and tax law to advise him or her regarding the administration of the trust.
Our office focuses on planning and drafting special needs trusts as well as their administration. We are familiar with the drafting of special needs trusts as part of an estate plan or as a stand-alone document. We work with clients of all wealth levels and ages, but especially elderly parents who have been caregivers of their adult special needs child throughout his or her life. As a member of the American Academy of Estate Planning Attorneys, our firm is kept up-to-date with information regarding estate planning and special needs trusts. You can get more information about a complimentary review of your clients’ existing estate plans and our planning and administration services by calling our office.