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Planning for the Future: Special Needs Planning

A complex and multifaceted area of estate planning and elder law, special needs planning focuses on planning for the present and the future by taking into consideration public benefits for your own needs or those of your intended beneficiary.

According to the Centers for Disease Control and Prevention, 26% of adults in the United States have some type of disability, meaning one in four adults report suffering from a condition that limits their movements, senses, or activities. Often, these conditions will severely impact a person’s quality of life, affecting one’s ability to do activities often taken for granted, such as bathing, cooking, and driving.

Depending on the severity of the condition, you or your beneficiary may not have access to gainful employment and earned income. For people who cannot support themselves or cannot afford the cost of care that their condition requires, there is a multitude of federal and state benefits available, including Medical Assistance (Medicaid), Supplemental Security Income (SSI), and/or Social Security Disability Insurance (SSDI).  Each of these benefits has complex qualification requirements, which differ from the others.

Losing these public benefits can drastically impact your quality of life, especially if you rely on these monthly payments for food, shelter, and other expenses, and if you rely on the services these programs provide. Furthermore, since the process to qualify for these programs is lengthy and time consuming, it is best to avoid repeating the qualification process.

Special needs planning is a necessary tool to ensure that benefits for you or a loved one are not affected due to an unexpected or poorly planned inheritance or following a lump sum court award.  It is important to discuss your options with your attorney and determine how your estate plan can be prepared to protect these benefits. Your attorney may recommend a variety of options tailored to your specific needs, which may include one or more of the trusts explained below.

Types of Special Needs Trusts

First Party/Pooled Special Needs Trusts. If you are currently receiving a means-tested benefit, meaning you qualify for a benefit by being below a certain asset and/or income threshold, the damage that an inheritance or a lump sum court award could have on your benefits is not only a nuisance but could make you ineligible.  For example, in 2022, an unmarried person must have less than $861 a month in unearned income and no more than $2,000 in resources (assets you own) to receive SSI.

By receiving an inheritance or a lump sum court award, you could become immediately ineligible – not only for the month you receive the inheritance or a lump sum court award but also for the months following – if you have not taken any action to spend down or remove these funds from your control. The most common example we see is when a parent passes away, leaving an inheritance outright to a child who receives benefits.

There are a few options available to you or your beneficiary in this instance, such as creating a First Party Special Needs Trust or a Pooled Special Needs Trust. If a beneficiary does not have the requisite capacity to sign this document, a parent or guardian may prepare this document on the beneficiary’s behalf.

Third Party Special Needs TrustsFor a client who wants to provide for a loved one who receives benefits, either during the client’s lifetime or upon their death, a Third Party Special Needs Trust may be appropriate.

The most common Third Party Special Needs Trust that we recommend to clients is a Testamentary Special Needs Trust. This trust is created through your Will and is not funded until your death (or, for married couples, upon the death of both spouses). The Testamentary Special Needs Trust ensures that upon your death, your intended beneficiary will receive funds from your estate and will not be disqualified from any means-tested benefits that they are receiving or that they may receive in the future.

The other type of Third Party Special Needs Trust is a trust created during a client’s lifetime that is funded immediately or at the discretion of the client at a later date. A Third Party Special Needs Trust may be irrevocable or revocable and may have some additional benefits for the client (such as assisting the client with qualifying for a means-tested benefit themselves). The additional benefit of Third Party Special Needs Trusts is that friends and other family members may gift to the trust during their lifetimes, or through their estate plans, making this trust an excellent planning tool.

       To discuss means-tested benefits and how they may impact your estate plan or your loved one’s eligibility status, please contact an attorney in our Estate Planning department.