Special Needs Planning

When a family member with "special needs" is in your care, you should plan on how that support will continue when you are no longer around. Generally, in order for your family member to qualify for important government benefits, such as Medicaid, he or she has to turn over any inheritance they receive. However, a Special Needs Trust allows you to leave money for the beneficiary’s care that will not count against government benefit thresholds, because the assets are still part of your estate, not your loved one's. Medicaid and other government programs provide only a very basic level of coverage, and a special needs trust can make a big difference in the quality of life your family member will have.

Types of Special Needs Trusts

The most common type of Special Needs Trust is a testamentary or third-party trust. Family members would create this trust and leave assets, like an owned residence, money, life insurance benefits, or retirement benefits in the trust through the estate plan. These assets are then permanently exempt from recovery by the government.

A self-settled or first-party Special Needs Trust uses the beneficiary's own assets for funding. For example, these assets may come from a personal injury award or a direct inheritance. These assets would typically put the dependent over the threshold for eligibility for government benefits, unless they are placed in a first-party trust. The trust shelters the assets while the beneficiary is alive, so they can be used to provide items and services that improve his or her quality of life; then upon death, the amount remaining in the trust is subject to "payback" rules to reimburse the state for medical expenses.

Identifying a Trustee

The trustee, who will manage the trust and distribute its assets on behalf of the beneficiary, should be someone trusted, like a family member. Opt to pick a person for this duty who knows the beneficiary very well, but with good business judgment. The rules for trust management are complicated, so your trustee should plan to consult regularly with an attorney and accountant experienced with special needs trusts. If no responsible person is willing or able to be the trustee, consider an institutional trustee, such as a bank or professional trustee.

Funding the Special Needs Trust

When setting up a testamentary or third-party trust, estimate how much assistance your special needs family member will require, and determine how those funds will be sourced. Include his or her requirements along with your own retirement and life insurance planning. By determining the amount of assets you will need to live out your retirement years while caring for your special needs dependent, you will know the remaining assets that can be used to fund the trust.

The funds in the special needs trust can be used for paying for medical expenses not covered by SSI and Medicaid or discretionary spending, so long as the expenditure helps the beneficiary. Medicaid and SSI officials do review trust expenditures to determine whether they are appropriate.

In addition to the Special Needs Trust, you should consider preparing a letter of intent for your trustee. Along with your overall intentions and goals with respect to your family member, you can provide information regarding their functional abilities, routines, and interests. You should identify specific doctors and their contact information, medications, services, and support organizations that you believe can contribute to the beneficiary's sense of independence and self-reliance.

This information is for general educational purposes, and is not intended to constitute legal advice. As no two families’ needs are identical, it is best to have an attorney tailor the Special Needs Trust to fit your family member’s circumstances and to maximize the ability to change to meet future needs. Attorney Lawrence D. Rouse can help you prepare a special needs trust for your specific situation.