Crafting a Comprehensive Plan: Ensuring Care for Your Child with Disabilities Beyond Your Lifetime
When you have a child with disabilities it can be difficult to begin thinking about what his or her life will be like after you pass away. A plan should be created early to ensure they have everything they need to be successful after your passing. An inheritance from a parent directly to the child with disabilities may prevent the child from being eligible for Medical Assistance and other needs-based programs. The death of a parent can trigger a "spend down" of assets, even with a surviving spouse, to qualify for these programs. Needs-based programs require the recipient to own assets under a certain threshold. A successful plan never transfers assets to the child directly, rather all assets are transferred to a trust for the child's benefit.
Assets of an Individual with Disabilities (First Party Trust)
If you have disabilities and receive an inheritance directly then a Special Needs Trust or a Pooled Trust may solve your issues with your needs based program. A Special Needs Trust is funded by an individual, under the age of 65, who receives government benefits to allow them to continue to qualify for benefits during their lifetime. The funding of the trust limits the resources and assets of the individual. The trust must be approved by the Department of Human Services, Office of General Counsel. Funds of the trust may be distributed to the individual, but only for "extras" that are not covered by their benefits. A Pooled Trust is another alternative for individuals who receive an inheritance directly and have too many assets to qualify for their benefits, but not enough to warrant the creation of a separate trust. Pooled Trusts are managed by non-profit corporations that invest all the funds together while keeping separate accounts for each individual.
The drawback with the use of a Special Needs Trust or a Pooled Trust is that upon death of the initial beneficiary the trust is required to pay back Medical Assistance for expenses incurred during life. There is a chance that there will be no funds remaining in the trust to be transferred to the contingent secondary beneficiary. It is best to plan ahead and fund a Supplemental Needs Trust, discussed further below, for their benefit.
Transfer of Assets from a Third Party to an Individual with Disabilities (Third Party Trust)
A Supplemental Needs Trust can be created under the parents' wills or a trust created before the surviving parent's passing for the benefit of a child. Supplemental Needs provisions provide that the assets within the trust are not meant to replace the benefits your child already receives, but to instead provide for "extras" that otherwise are not covered by your child's benefits. These "extras" include, but are not limited to, medical expenses, cultural or educational expenses for entertainment, vehicle modifications, and other expenditures which would maximize the beneficiary's quality of life.
When creating the trust, you will need to appoint a trustee. Depending on the size of the trust a close friend or other family member may be the best choice. As trustee, the close friend or other family member understands the needs of your child from speaking with you before your passing. The trustee can make sure they are involved in the child's life and use the trust funds in the way you intend. A trust company or a bank may be the best option as trustee if the trust fund is above a certain to make sure it is invested properly and distributed conservatively. A corporate trustee can also be advantageous if you do not have a close friend or other family member you would want to give this responsibility.
These trusts require a contingent beneficiary. In the case of a Special Needs Trust or a Pooled Trust, it is less likely that there will be funds remaining after the death of your initial beneficiary because they are required to pay back amounts due to Medical Assistance. With a Supplemental Needs Trust there is a greater chance that there will be remaining funds in the trust after the initial beneficiary's death.
Should you think the preparation of a Special Needs Trust or Supplemental Needs Trust may benefit you or a child, please feel free to contact a member of our Trusts and Estates Practice Group.
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