The Guide to Special Needs Planning Planning for Your Child with Special Needs

Introduction

Estate planning for parents with children who have special needs presents unique challenges:

• How do you leave funds for your child without causing them to lose essential public benefits?
• How do you ensure proper management of those funds?
• How do you prevent overburdening your other children with caregiving responsibilities?
• What is a fair distribution of your estate among your children?
• How do you ensure sufficient financial resources to sustain your child over time?

The best interest of all family members is served when you secure the counsel of RJ Fichera Law Firm, an experienced professional in Special Needs Planning. Taking proactive steps with our guidance preserves your family’s assets and expected government benefits, ensuring the best possible future for your loved one with special needs.

Special Needs Trusts

Many parents attempt to address these issues by disinheriting their child with special needs and leaving their estate to their other children. They do so based on the following assumptions:

• The special needs child should not receive anything since they cannot manage money and would lose their benefits.
• Public benefits will be sufficient to provide for them.
• The other children will take care of their sibling.

However, this approach is flawed:

• Public benefits programs are often inadequate and need supplementation.
• Public benefits programs and personal circumstances change over time.
• Relying on siblings to provide financial support can create tension and uncertainty within the family.

A more effective approach is establishing a Supplemental Needs Trust (SNT) or Third-Party Special Needs Trust. This type of trust serves two primary purposes:

1. Managing funds for an individual who may not be capable of doing so due to their disability.
2. Preserving the beneficiary's eligibility for public benefits such as Supplemental Security Income (SSI), Medicaid, and public housing.

How Trusts Work

A trust is a legal arrangement where one person, the trustee, manages assets for the benefit of another person, the beneficiary. The trustee follows the trust agreement's instructions, deciding how and when to distribute funds for the beneficiary's benefit.

There are two primary types of trusts:

• Self-Settled Trusts (First-Party Special Needs Trusts): Established with the beneficiary's own money, typically from an inheritance or lawsuit settlement.
• Third-Party Trusts: Established and funded by someone other than the beneficiary, such as parents or grandparents.

Each type of trust has unique legal and financial implications, particularly concerning Medicaid, SSI, and other public benefits. While you cannot create a trust for your own benefit to shield assets from benefit eligibility calculations, Medicaid and SSI laws provide exceptions for properly structured special needs trusts.

Accessing and Preserving Public Benefits

If a trust is created for the benefit of someone else, and the trustee has full discretion over distributions, the trust assets will not count as available resources when determining eligibility for public benefits.

However, using trust funds for certain expenses can reduce benefits. For example:

• Direct cash payments to the beneficiary decrease SSI benefits dollar for dollar.
• Payments for food and shelter may also reduce SSI benefits.

A properly drafted trust should ensure that trust funds are used strategically to avoid jeopardizing eligibility for benefits. Some trusts impose strict limits on the trustee's discretion, while others provide guidelines to minimize the impact on public benefits. Flexibility in the trust's structure ensures adaptability to future changes in benefit programs and personal circumstances.

Choosing a Trustee

Selecting a trustee is a critical aspect of planning for a child with special needs. The trustee must:

• Handle accounting, investments, and tax reporting.
• Understand public benefits programs.
• Be sensitive to the beneficiary's unique needs.
• Have knowledge of available social services.

Several solutions exist:

• Co-Trusteeship: A family member works alongside a professional trustee (such as a bank or law firm).
• Professional Trustees: Appointed if the trust has sufficient assets to justify their fees.
• Family Trustees with Professional Assistance: A family member serves as trustee with the support of attorneys, accountants, and investment advisors.
• Pooled Trusts: Managed by nonprofit organizations, combining multiple beneficiaries’ assets for professional administration and financial management.

If no suitable family member is available, a Care Committee of trusted individuals or social workers can advise the trustee.

Funding the Trust

Key questions in funding the trust include:

1. How much will your child need over their lifetime?
2. Should all children receive an equal inheritance, regardless of need?
3. How do you ensure sufficient funds for your child with special needs?

Projecting future costs can be challenging. A financial planner with experience in special needs planning can help determine appropriate funding levels. Err on the side of overfunding rather than underfunding, as public benefits programs and costs of care may change.

Life insurance is a common funding strategy, particularly second-to-die policies that pay out after both parents pass away, offering a cost-effective way to secure additional financial resources.

Exempt Trusts

A Supplemental Needs Trust can also hold inheritances from grandparents or other relatives. However, it should not hold assets belonging to the disabled individual, as this could disqualify them from Medicaid or SSI benefits.

Two types of Exempt Trusts exist for beneficiaries using their own assets:

1. Payback Trusts (d)(4)(A) Trusts

• Created for a disabled individual under 65.
• Must be established by a parent, grandparent, legal guardian, or court.
• Upon the beneficiary’s death, remaining funds must reimburse the state for Medicaid expenses.

1. Pooled Disability Trusts (d)(4)(C) Trusts

• Managed by a nonprofit organization.
• Remaining assets do not have to repay Medicaid but stay in the pooled trust to help other individuals with disabilities.

Each trust type has specific legal requirements to qualify for public benefits exemptions.

Conclusion: The Importance of Planning

Thoughtful estate planning ensures the best possible quality of life for your child with special needs. Trusts provide an effective way to manage funds while preserving eligibility for public benefits. Consulting with an experienced Special Needs Planner like RJ Fichera is essential to crafting a tailored plan that meets your family’s unique needs.

Note: This is an article based on the Booklet from the © 2014 Academy of Special Needs Planners | specialneedsplanners.com and brought to you by the RJ Fichera Law Firm , where our mission is to provide trusted, professional legal services and strategic advice to assist our clients in their personal and business matters. Our firm is committed to delivering efficient and cost-effective legal services focusing on communication, responsiveness, and attention to detail. For more information about our services, contact us today !

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.

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© 2014 Academy of Special Needs Planners | specialneedsplanners.com

Disclaimer

The information in this guide should not be considered legal advice. While we strive to provide detailed, reliable, and understandable legal information, our ASNP Guides cannot substitute for an attorney applying the law and years of experience to a particular client situation. We urge readers to use this guide as background material and to consult with a qualified professional before taking action.