Special Needs Planning
So what’s the answer?
A trust. The type of trust you choose is critical; they are called Supplemental Needs Trusts. Supplemental Needs Trusts (also known as Special Needs Trusts) are drafted so that the funds will not be considered to belong to the beneficiary in determining his or her eligibility for public benefits, such as Medicaid, Supplemental Security Income (SSI), or public housing. These trusts are designed not to provide basic support, but instead to pay for comforts and luxuries that could not be paid for by public assistance funds, such as education, recreation, counseling, and medical attention beyond what is required simply to maintain an individual.
Very often supplemental needs trusts are created by a parent or other family member for a disabled child (even though the child may be an adult by the time the trust is created or funded). But the disabled individual can often create the trust himself or herself, depending on the program for which he or she seeks benefits. Medicaid is the most restrictive program in this regard, making it difficult for a beneficiary to create a trust for his or her own benefit. But even Medicaid has a “safe harbor” allowing for the creation of a supplemental needs trust with a beneficiary’s own money if the trust meets certain requirements. This is sometimes called a “(d)(4)(A)” trust, referring to the authorizing statute.
There is another type of trust designed to hold your child’s own money – in case they get a job or an inheritance. This trust can only be created by a parent, grandparent, guardian or court and is meant to keep the child’s savings under program limits so they keep their benefits. We recommend parents create this trust as a stand-by in case it is needed at a time when they are no longer here. It saves a lot of hassles down the road.
A third type of supplemental needs trust is one created for the sole benefit of a disabled person – they don’t even have to be related to you! This type of trust is very handy especially when a personal move to a nursing home is contemplated. By creating this type of trust the person moving to the nursing home can qualify for Medicaid without any transfer penalty, and the disabled child can also maintain their eligibility for benefits.
Are you the parent of a minor or adult disabled child? Do you stay up at night worrying about how to provide for your child when you are no longer able to do so?
Maybe you think it’s best not to leave them anything, and rely on brothers or sisters to take care of them. This is not a good solution. It puts unwarranted emotional burdens on your other children and, if any of them run into financial trouble or get divorced – there goes the money to take care of their brother or sister.