Estate Planning for Beneficiaries with Disabilities
The receipt of an inheritance or a large personal injury settlement could complicate matters for people who need to qualify for or keep means tested government benefits like Medicaid or Supplemental Security Income (“SSI”). Most means tested programs have eligibility requirements that provide benefits to disabled individuals with countable assets in the amount of $2,000 or less. Furthermore, with the cost of medical and nursing home bills being so high any such inheritance or large personal injury settlement could be quickly depleted.
A special needs trust is a planning tool that can be used to supplement public benefits and preserve means tested benefits while providing for the special needs of a disabled individual. The goal is to enhance the quality of life for individuals with disabilities by incorporating a vehicle for funds to be set aside to be used for their needs not met by public benefits. There are two main types of special needs trusts.
1. Third Party Special Needs Trust - A third party trust is funded with the assets of someone other than the disabled person and generally, is not considered a countable resource to the beneficiary if the trustee has complete discretion over the use of the trust assets and the beneficiary does not have the legal authority to revoke or terminate the trust or to direct the use of the trust assets for his or her own support and maintenance.
2. Self-settled Special Needs Trust - These trusts are funded with the assets of the disabled person and represent exceptions to the restrictive financial rules for means tested public benefits. The transfer of assets (income or resources) into a self-settled trust is not subject to penalty, and assets in the trust are not counted as available resources for eligibility purposes. These trusts must provide for the reimbursement of Medicaid benefits received by the disabled individual before trust assets (assuming there are any remaining) can be distributed pursuant to the beneficiary’s instructions or to his or her descendants or heirs at law.
- Self-settled Stand Alone Special Needs Trust - This trust may be established by a parent, grandparent, legal guardian, or a court for the benefit of an individual who is under 65 years of age and who is disabled according to the Social Security Administration (SSA) definition.
- Self-settled Pooled Interest Special Needs Trust - The trust must be managed by a nonprofit agency which maintains a separate account for each individual but may pool the accounts for investment purposes. The individual must meet the SSA definition of disability. The account may be established by a parent, grandparent, legal guardian, court, or the individual himself or herself. The trust may retain funds in the account when the individual dies.
There are other estate planning opportunities for people with disabilities. Consult with an experienced estate attorney regarding these matters.