The most important part of many estate plans is providing for a disabled family member. It is critical that leaving property to a disabled beneficiary is done according to the legal procedures and rules that will ensure the family member gets the proper benefit of the property while not impacting their ability to receive the disability benefits to which they are entitled.
When a family member is unable to manage or own the property you desire to leave to them in the event of your death, that property must be left to the family member in trust. Other times, there are reasons to transfer assets during your lifetime into a trust for the benefit of a disabled family member. A trust is a legal form of ownership of property that designates the trust as the owner of the property while designating a trustee to exercise control over the property for the use and benefit of the beneficiary in the manner described in the trust document.
The trust is a separate legal entity that is designed to hold, collect, and manage assets. A trust can receive additional contributions from a variety of sources after it is formed, including gifts, bequests, and life insurance benefits from family members. A trust can also receive and manage funds from a legal settlement due to the beneficiary.
Special needs trusts are irrevocable trusts that are governed by state and federal law. When these types of trusts are properly established and maintained, they can allow for a minor or disabled beneficiary to qualify for need-based public benefits without being disqualified because of the property owned by the trust. Of course, the trust also protects the interests of the beneficiary unable to manage their own affairs because of age and/or disability.
A special needs trust can provide a way to assist disabled family members during your lifetime without impairing their ability to qualify for certain benefits. For example, if a family member has extraordinary medical needs that are provided partially or wholly by some public benefit, a special needs trust can allow the beneficiary's family to provide things the beneficiary needs without disqualifying the beneficiary from needed public benefits.
If a family member's particular circumstances would not make it wise to directly provide assets to them, a special needs trust also places a trustee in the position of ensuring that the family member is not able to waste or cause harm by having direct control of assets.
Special needs trusts can be useful to protect assets from creditors or to secure assets for the benefit of a disabled child in a divorce proceeding. Child support paid to a proper trust can be protected against creditors of either parent when a disabled child has special needs. The trust also contemplates providing for the care and needs of the child after reaching adulthood under disability.
When a family has multiple children, but only one child with special needs, a special needs trust can provide for the care of the disabled child for life while allowing for the trust assets to be distributed to the other children when the disabled child passes away, subject to any reimbursement claims from governmental, insurance, or health providers.
Many disabled persons can qualify for government services and financial support. While a child’s assets may not be considered in determining eligibility for some benefits, a disabled adult’s assets come into the calculation. A disabled adult’s assets can adversely affect qualification for Medicaid coverage, Medicaid “waiver” support and services, Supplemental Security Income (SSI), and other housing subsidies.
Leaving property through a will or gifting property directly to a disabled person can immediately disqualify the disabled family member from these public benefits. When property is left or gifted to a disabled family member through a proper special needs trust, the assets are not considered as the family member’s property when eligibility is considered. The same is true of any proceeds due to a family member from a legal action. In approving the settlement of a legal action for the benefit of a disabled person, the court can direct that the settlement be paid into a special needs trust.
With a proper special needs trust, the trustee has complete control of the assets and the property of the trust can only be used for the proper care and support of the disabled family member. In addition to being excluded from eligibility calculations, the assets of a special needs trust are sheltered from any claims against the disabled beneficiary.
The rules regarding special needs trusts vary from state to state, and you should consult with a qualified trust agent or attorney in your jurisdiction if you are interested in creating a special needs trust for the use and benefit of any disabled loved one.