Articles by  Alice Reiter Feld

DEVELOPMENTS IN ESTATE PLANNING
The Special Needs Trust
Planning for the heir with special needs

Last week Mrs. Smith (not her real name) came to my office to update her will and trust. She has three grown daughters but was especially concerned about one daughter with multiple sclerosis. Who would handle the daughter's finances when the mother was gone? Who would take care of her? Would she lose her government benefits, especially Medicaid , if money was left to her? Mrs. Smith's concerns are unfortunately not unusual.

If you have a loved one with special needs (an emotional or physical challenge), you are concerned about the balance between what they might inherit and the possible loss of their government benefits. This is frequently overlooked in the estate planning process.

Families need to be aware of their options in providing for a special-needs loved one.

1. The special-needs person ( SNP ) may be disinherited. This is an option if the assets available for the SNP are small.

2. Give the SNP the assets outright. Caution should be exhibited with this option as it could result in loss of government benefits or the SNP spending it unwisely.

3. Another option is to give the funds outright to a third party for the care and well-being of the SNP. Be careful! The third party you choose has no legal obligation to spend it on the SNP. It is subject to the owner's creditors and can have a negative effect on the third party's own income taxes or estate plan. Also, when the owner dies, his or her heirs may not be trusted to care for the SNP heir.

4. This leaves us with the last and usually best option, the Special Needs Trust ( SNT ) . Special Needs Trusts are used to allow one person to set aside funds for the care and benefit of an SNP. This is a common family practice for special-needs children, grandchildren, siblings or other relatives. The key to an SNT is that they are drafted to be totally discretionary so that the SNP cannot demand distributions. Since the assets are not legally available to the beneficiary on demand, they are not considered assets when the SNP applies for government benefits.

The Special Needs Trust can also provide directions for the lifetime care of the SNP. This is especially important for aging parents who have been the primary caretaker of a disabled child. It gives great peace of mind to provide a mechanism for care of the heir after the death of the caretaker. This should not be left to chance or the good graces of other family members.

Special Needs Trusts are also used to manage and shelter funds of the SNP gained through personal injury awards. It is imperative that the settlement in the personal injury case go directly into the trust and not in the hands of the SNP. The attorney handling the personal injury case usually brings in an SNT expert prior to settlement to make sure that the settlement does not interfere with government benefits and to provide a lifetime care plan for the SNP. As long as the SNP is not the trustee, there is no interference with the SNP's ability to qualify for SSI, Medicaid, or other government benefits.

SNT's must conform with government requirements to assure that the SNP continues to be eligible for SSI or Medicaid.

Please call our office so that you may learn how a Special Needs Trust may protect your Special Needs Person as well as other methods of preserving assets for Medicaid and other government benefits.