Speakers: Maritess Bott and Unidentified Off-camera Speaker
[Music]Off-camera Speaker:
Hey Maritess, can you tell me more about special needs planning?
Maritess:
Yes, I would love to.
Hello everyone, my name is Maritess Bott of Bott & Associates. Thank you so much for joining us today on our podcast.
Today we’re going to talk about special needs. It’s definitely a topic that, if you do have a child or an adult in your life that has special needs, it’s something you think about. But this is also for people who don’t have that, and I say that because any one of us can have a diagnosis at some point where we are going to have some special needs planning, and it’s for people who need it right away, versus people that may need it for the future for their kids.
Special needs planning in a nutshell is about making sure that the people receiving your inheritance are going to be able to receive their inheritance as a whole, without being disqualified from the government benefits that they’re already receiving.
A lot of people have Medicaid, SSI—if you have an autistic child, if you have an adult beneficiary that’s on both of those because of the fact that they have challenges with their health that they’re unable to be working, they’re able to get some type of Medicaid and SSI on a monthly basis. The minute that somebody receives money from an inheritance and they’re above the amount that they can have in order to be on those government benefits, they get kicked off those benefits and they’re unable to get back on until that money has been spent down.
Special needs planning means we’re going to create a Special Needs Trust for this person so they can have their cake and eat it too. That means we’re going to give their inheritance to them in a Special Needs Trust and that person can still continue to get SSI, Medicaid. Then that trust is available for their supplemental needs.
What does that mean? We all know that it’s often difficult to meet all of your clothing, shelter, food needs just from the SSI payment or disability payment, so anything above that—anything that’s supplemental. It could be additional things that they need such as health, dental, entertainment—there’s such a wide variety of things that we can use this money for—as long as they can still get that money and primarily use that money for the basics, which is food, shelter, clothing.
Now I’m going to tell you the difference—there are several types of Special Needs Trust and it’s really important to know the difference and why it’s important to do it.
There is what is called a First-party Special Needs Trust. That means I’m creating a trust because I have special needs and I’m going to put it into a trust but the money that is going to fund this trust is my money. Often what happens—when you have a car accident and there’s a settlement amount being given to you, you’re disabled, and now we’re going to put this money in a First-party Special Needs Trust and you can use it. But the negative about a First-party Special Needs Trust is, the first beneficiary has to be the state of Illinois, the state that you live in. Because they’re going to be reimbursed down the road if there’s any money left over and they know that the Special Needs Trust exists, then we’re certainly going to have to pay them back first and then the family members can get the rest of the assets.
Contrast that to a Third-party Special Needs Trust. That is a trust that’s created by somebody else. For instance, it could be a parent of an autistic child, it could be a sibling of a special needs sibling. As long as someone else creates it and someone else funds it, then that money can be used for this person’s supplemental needs without being kicked off of Medicaid, SSI.
The biggest difference with the Third-party Special Needs Trust is that upon the death of the special needs person, we can determine where the money goes. The state does not have to be a beneficiary on a Third-party Special Needs Trust. That is a good thing.
Often we’ll create living trusts where we have a Special Needs Trust created for an autistic child. For instance, let’s just say the child is receiving $500,000 from Mom and Dad’s estate. We’re going to create a Special Needs Trust for Johnny. That money is available for him, maybe the sibling is the trustee, money’s available for him for his supplemental needs. If Johnny is on Medicaid, we’re not going to kick him off; if he’s on SSI, we’re not going to kick him off. But he gets his cake, the inheritance, and he gets to have the rest of those benefits still continue. That is considered a Third-party Special Needs Trust because it was funded by the parent.
The problem with planning like this is, people don’t think that you need it. What I mean by that is, I’m going to give you an example. This is something very common. Often, a trust will be created and it says, give it to my kids, equal shares outright. No Special Needs Trust planning at all. Then, down the road 10 years later, 20 years later, that adult child was diagnosed with something where they are on Medicaid, they are on SSI. The parents didn’t even think about that. Now we have to give it to the child directly because that’s what the trust says, and it’s going to kick them off of benefits. We have to wait until the money is spent down. Or that child can create a Special Needs Trust for himself—a First-party Special Needs Trust, stay on Medicaid, and then if there’s anything left over, it’ll go to the estate. If there’s anything left after that.
Had the mom or dad just put the Special Needs Trust language within their original revocable trust, we would have eliminated that entirely. It’s very common. Almost always, I see a trust come to me and they say, here I’ve done it, here’s my trust, and they’re all happy and they feel satisfied that they had a trust done. But I’m looking at it like, you don’t have special needs planning in here. And they might tell me, no, my kids are fine, no big deal. You don’t know if they’re going to be fine in the future. Unfortunately, we don’t have that crystal ball.
On top of that, if this trust ever goes to the next generation, what if you did have that autistic grandchild that will eventually receive this money? Why would you want that money to just go to a grandchild that shouldn’t be getting the money directly, but in a Special Needs Trust?
It’s a big deal. This is a really big deal. I always implore people to have Special Needs Trust planning no matter what.
I’ll share a quick example that has happened recently and it’s quite remarkable in my mind.
We recently had to take care of clients who are beneficiaries to their great-great-great-great-great grandfather’s trust. This is actually a will that was signed in 1924 and I looked at it and I was like, wow. 100 years later, great-great-great-great-great grandfather’s trust that was created through the will still exists and still benefits many generations, which is remarkable.
My beneficiaries—their father sadly passed away unexpectedly and he was receiving these benefits too. Now the two beneficiaries under him are two kids in their early 20s. One of the kids has special needs. When I looked at the will, certainly back then they didn’t think about special needs planning at all. It might not even have existed back then.
The trust has a benefit of these two kids receiving $100,000 every single year. That’s amazing. First part is the amazing legacy that this can generate this much income and principal to help multiple generations. I love that.
But my client is now on SSI and Medicaid. He has a very difficult disability. We have to create a Special Needs Trust for him so that his income that’s coming from great-great-great-great grandfather’s trust is going to go in this trust, the Special Needs Trust, so he can continue to get benefits.
I always say, just use the trust assets as needed. That way he can still have his Medicaid and SSI. Because it’s a First-party Special Needs Trust, unfortunately, if something happens to this beneficiary, whatever is left over is potentially given to the state of Illinois.
In contrast, if this trust—I know it’s from 1924, so most likely not—had some special needs provisions in it, we could have just created one for him and we wouldn’t have the state of Illinois be a beneficiary of this Third-party Special Needs Trust. Instead, we had to create a First-party Special Needs Trust.
Either way, he’s in his early 20s. He’ll hopefully live a very long time. This money can be used throughout his life for whatever he needs and potentially there might not be much left. It’ll be distributed to him, he uses it for the year, then he gets his next distribution the following year.
This is just a big shout out to everyone who’s trying to do estate planning in general to consider special needs planning because it could be the difference between, here, state of Illinois, here’s the rest of the money, versus get the state of Illinois out of the picture and give the rest of the money to the family members—not the state of Illinois.
That’s a big deal. Huge deal. Very important. It’s simple to think about but complex to actually utilize and strategize with.
Definitely use an estate planning attorney that does this and make sure you try not to do it yourself or go to somebody that doesn’t have the expertise. Hopefully that’s understandable for you.
If you have any questions or if you’d like to have a report explaining Special Needs Trust, just give us a call. You’ll see that below. Give us a call or send us a quick chat on our website and we’ll get that report out to you.
Thanks again for watching our video, watching our podcast, listening as well. We’ll see you next time. Again, this is Maritess. Have a great day.
