Estate Planning for Disabled Beneficiaries: Special Needs Trusts

A Special Needs Trust (SNT) is an essential part of an estate plan for clients who want to provide for the financial future of a disabled beneficiary.  If you have appointed a beneficiary, whether a minor, adult, other relative, or friend, who is currently receiving, or will receive, federal or state benefits like Supplemental Security Income (SSI), Medicaid, or MediCal, then you must consider adding an SNT to your estate plan.  SSI and Medicaid provide important, expensive resources for people with disabilities, including:

• cash benefits
• medical coverage
• long-term care supports
• attendant care
• other vital services  

Poverty is a requirement for receiving these benefits.  If the person has more than $2,000 in cash assets, then SSI and, possibly, Medicaid are cut off.  SSI cash benefits are meant to purchase the bare necessities of life: food, shelter and clothing. There is usually not much left over for extras. When parents are alive, they often pay for these extras, such as:  special adaptive equipment, medications and supplements, cell phones, internet access, vacations, TV sets, dental care, personal hygiene products, art supplies, higher education, movie rentals, etc. Many parents hope to leave their child an inheritance that will continue supplying this higher quality of life after they die.

The only way to leave inheritance, whether from life insurance, an IRA, or cash, to a disabled beneficiary is to establish a Special Needs Trust within your will or living trust.  Otherwise, even a small inheritance can cause a recipient’s benefits to terminate.

How Does a Special Needs Trust Work?
Your beneficiary is not allowed to have any direct access to inheritance money or control over it if they are to keep their government benefits.  So, rather than leaving money directly to the disabled beneficiary, you will establish a trust that is controlled by someone else.  This person is referred to as a “trustee.”  The trustee ensures the money is spent for your child’s care and benefit.  The trustee will have to be very careful to follow the rules, because your beneficiary can be penalized if funds are used to pay for “basic necessities” such as food or shelter.  Therefore, if the trust pays rent or grocery bills or similar expenses, the monthly benefit check from Supplemental Security Income will be reduced accordingly.

Because of the technical rules surrounding government benefit programs, it is very important to pick a responsible and willing trustee.  If you do not have a family member or friend who can do the job, there are professional or corporate trustees including banks, attorneys, and individuals with expertise in this area.

Special Needs Trusts can be created up until your child or other beneficiary turns 65.  But the sooner you take action, the better for your disabled child.  If you leave an inheritance directly to a disabled beneficiary, then these funds can actually make the beneficiary ineligible for SSI and also Medicaid benefits.  In this case, the beneficiary, or a court of law, can set up a “self-settled” trust in order to protect their government benefits. However, this kind of trust is more expensive to establish than an SNT, and even worse, any money remaining in the trust must be used to repay the government for benefits he or she received.  With Special Needs Trusts, there is no requirement to repay government benefits when the child dies, so all remaining funds can go to family members.

Orange County Estate Planning Law Firm
If you are concerned about the care and financial security of your disabled beneficiary, you should speak with an experienced estate planning attorney.  At MORTENSEN & REINHEIMER, PC, we can help you establish special needs trusts for your disabled beneficiaries.  By working with our attorneys, you can add a Special Needs Trust to your estate plan today!

Contact Our Law Firm
Call the estate planning attorneys at MORTENSEN & REINHEIMER, PC today at (714) 573-7149, or send an e-mail to info@ocestateplanning.net, and we will contact you to set up a free initial consultation.