Special Needs Planning
One way you can look at the population of the United States is to see it through the prism of identity groups. We distinguish people based on where they are from, their racial or ethnic backgrounds, their religions, genders, wealth, and so on. Americans have become comfortable with such classifications generally, but there is at least one group that can still elicit an awkward silence: disabled, or special needs Americans.
They seldom appear in popular media, and people tend not to talk about them. But Americans with mental, physical, or sensory disabilities form about one-fifth of our population, meaning that even if no one in your immediate family has a special needs requirement, chances are good that you know of a family that includes such a person. For our purposes here, we assume that you are a caregiver for someone with a disability, either as a child or an adult, and need answers on some of the legal ways to provide for that care.
What is Special Needs Planning?
If you currently provide assistance to a child or loved one with special needs (such as mental or physical disabilities), you may have contemplated what may happen when you are no longer able to provide and care for them. In this case special needs planning may be required.
While you can certainly ensure that they receive money and assets, receiving an inheritance may prevent them from qualifying for essential benefits under the Supplemental Security Income (SSI) and Medicaid programs. Public monetary benefits provide only for the bare necessities such as food, housing and clothing. As you can imagine, these limited benefits will not provide those loved ones with the resources that would allow them to enjoy a better quality of life. However, if parents leave any assets to their child who is receiving public benefits, they run the risk of disqualifying the child from receiving them. Fortunately, the government has established rules allowing special needs planning where assets can be held in trust, called a “Special Needs Trust” for a recipient of SSI and Medicaid, as long as certain requirements are met.
Caring for a loved one with a physical, sensory or mental disability is expensive. Fortunately, the Federal government and state governments provide many services to help you cope with the costs:
- Medicaid benefits, including the Children’s Health Insurance Program
- Social Security benefits, including disability benefits and Supplemental Security Income
- Veterans Administration benefits
- Other benefits, such as the Supplemental Nutrition Assistance Program and Temporary Assistance for Needy Families
All of these programs have eligibility requirements. These fall into two main types: what qualifies as a disability, and whether the benefit applicant makes too much money to qualify. Special needs planning describes the process through which you can provide for necessary care for a disabled family member while maximizing your eligibility for government benefits to help you.
What Goes Into Special Needs Planning?
Special needs planning is useful for disabilities that are long-term if not lifelong in nature. Particularly if the disabled person is a child, it is possible that the need for care will continue even after the parents are no longer living. The ability of parents to directly control the care for a disabled child must also take into account what to do when the child reaches legal adulthood. The legal tools you can use to create a sound special needs plan are in some ways the same ones you would use to create an estate plan, and can include:
- Establishing a guardianship. If it is apparent that your child will still not be able to live independently upon reaching age 18, you can arrange for a guardianship to take effect upon adulthood. This will enable you to retain some decision-making authority in his or her life when otherwise the law would preclude you from being able to do so. Some other tools you might think about in this regard include powers of attorney, wills or living wills, and advance healthcare directives.
- Establishing a special needs trust. A good special needs plan will maximize your loved one’s eligibility for government benefits. One of the significant hurdles you can face here is if you make too much income or have too many assets to qualify, especially for Social Security or Medicare benefits. Several kinds of trusts exist that can help you to legally avoid having some income and assets counted against the eligibility caps for these benefits.
What are Some Types of Special Needs Trusts?
What kind of special needs trust you can use will depend on your circumstances and your preferences. Here are some of the most common trusts used in special needs planning:
- First-party trust: Also known as a Medicaid payback trust, self-settled trust, “d4a” trust, or interceptor special needs trust. Useful when the disabled person has assets of his or her own to contribute in addition to government-provided benefits. These assets commonly originate in the form of insurance settlement proceeds, money damages from a lawsuit or funds from settling a lawsuit, or a separate inheritance. Non-income assets that would exceed the maximum amount to qualify for Medicaid can be transferred into the trust to preserve eligibility. The state that pays the Medicaid benefits is entitled to reimbursement from this trust after the beneficiary’s death.
- Third-party trust: Used when you plan to contribute your own assets to the disabled person’s care. Also known as a special needs inheritance trust. Operates by transferring his or her inheritance share of your estate into a trust fund. Assets in this trust do not transfer to the beneficiary’s ownership, and must be managed solely by a trustee (the beneficiary cannot directly access them). The trustee must take care not to allocate distributions from this trust which would make the beneficiary ineligible for Medicaid benefits. A key difference between this trust and a first-party trust is that the state has no claim to reimbursement from a third-party trust when the beneficiary dies.
- Pooled trust: Think of this trust as a collection (pooling) of several smaller special needs trusts under the supervision of a nonprofit organization that acts as the trustee. A pooled trust is similar to a first-party trust in that it takes in assets of the disabled person that would otherwise preclude Medicaid eligibility and the state gets reimbursement from the trust when the beneficiary dies, but it is easier to establish. A first-party trust places restrictions on who can create it: for example, a court, guardian, parent or grandparent must create it for the disabled beneficiary, who must be less than 65 years old. A pooled trust does away with the beneficiary maximum age limit and can be created by the Medicaid beneficiary instead of by someone else.
- Qualified income trust: Some special needs trusts, such as a first-party trust, cannot take the beneficiary’s income. A qualified income trust – also referred to as a Miller trust – is one way to allocate income to a trust when in some states it would otherwise disqualify the beneficiary from Medicaid eligibility.
- ABLE account: Although not a special needs trust, in some states an ABLE (“Achieving a Better Life Experience”) account is a way to establish a savings fund for qualified disability expenses without having the money count against income limits for Medicaid or Social Security Income benefits. Only individuals who are blind or suffer from significant physical or mental disabilities (ones which, if not ultimately fatal, create severe limits on the ability to function that will last for 12 months or longer) are eligible to have ABLE accounts (the blindness or disability must also have happened when the person was less than 26 years old).
Download our Medicaid Checklists here
What items do you need to take with you when you (and your spouse if you are married) go to file a Medicaid Application? We often see clients who do not understand what forms they need or forget important forms and then are not able to complete the application process. The following Medicaid Checklists should provide insight on what forms you will need. Download them for FREE!
Medicaid Checklist – Single
The following items are needed to file a Medicaid Application for a single individual.
Medicaid Checklist – Married
This checklist provides items which are needed to file a Medicaid Application for a married couple.
We meet with families on a regular basis who face long term care issues, but make decisions based upon incomplete understanding of the laws and rules concerning Medicaid. For example, while Medicaid is a federal program, it is administered on a state level and it’s the state laws which impact its administration.
Also, different rules apply for a single person and a married couple. We often find a family is making decision based upon the rules, but as they would relate to a person of a different marital status. This sheet will answer most of the common misconceptions about Medicaid benefits we encounter.
Benefits of Special Needs Trusts
Special needs planning and the creation of a Special Needs Trust can be used for a variety of life-enhancing expenditures without compromising your loved ones’ eligibility for government benefits such as:
• Annual check-ups at an independent medical facility
• Attendance of religious services
• Supplemental education and tutoring
• Out-of-pocket medical and dental expenses
• Transportation (including purchase of a vehicle)
• Maintenance of vehicles
• Purchase materials for a hobby or recreation activity
• Funds for the individuals trips or vacations
• Funds for entertainment such as movies, shows or ballgames.
• Purchase of goods and services that add pleasure and quality to life: computers, videos, furniture, or electronics.
• Athletic training or competitions
• Special dietary needs
• Personal care attendant or escort
Special Needs Trusts are a critical component of your estate planning if you have disabled beneficiaries for whom you wish to provide for after your passing. Generally, Special Needs Trusts are either standalone trusts or they can be a sub-trust in your existing living trust.
Setting up Special Needs Trusts
Schock Solaiman Ramdayal, PLLC can help you with special needs planning and setting up a Special Needs Trust so that government benefit eligibility is preserved while at the same time providing assets that will meet the supplemental needs of the person with a disability (those that go beyond food, shelter, and clothing and the medical and long term supports and services of Medicaid). Special Needs planning and a Special Needs Trust can fund those additional needs. In fact, the Special Needs Trust should be designed specifically to supplement, not replace public benefits. Loved ones should be aware that funds from the trust cannot be distributed directly to the disabled beneficiary. Instead, it must be disbursed to third parties who provide goods and services for use and enjoyment by the disabled beneficiary.
How Can You Get Started on Your Special Needs Plan?
What we have discussed here is an introduction to what can be a complicated process involving estate planning coupled with the need to comply with Federal and state laws and regulations that serve as gatekeepers to your benefits eligibility. Different benefits have different eligibility requirements, and these requirements are subject to change.
One thing you can do on your own is to learn more about the different types of available benefits. The Websites for Social Security, Medicaid and the Veterans Administration provide a wealth of additional information about their benefit programs. Another thing you can do is to consult with an attorney familiar with estate planning and special needs planning practice. Having the right legal help throughout the creation and maintenance of your special needs plan can mean the difference between eligibility and non-eligibility for important government benefits, and can avoid unnecessary delays that mistakes in the benefit application process can result in.
Contact an Experienced Estate Planning Lawyer
SSR Law Office is experienced in handling Special Needs Trusts. Clients all over Southeast Michigan trust our attorneys with the creation and planning of special needs documents. Give us a call to schedule an appointment – 586-239-0871