Special Needs Planning

Special Needs Planning

Protecting loved ones with disabilities through the use of Special Needs Trusts

It is common today for families to have a loved one who is in need of extra support and/or who is receiving government assistance. Whether a family is worried about how to provide for these individuals in the future or in the event the individuals themselves are receiving some sort of money (via either a law suit or inheritance) the creation of correct estate planning documents is imperative. Moore Law, LLC is here to help and can ensure that the proper estate planning documents are used.

There are two general types of special needs trusts utilized by individuals. The first trust is funded by someone other than the beneficiary. These trusts are commonly referred to as a “Third Party” special needs trust. The second type is where the person receiving benefits funds the trust themselves. This is common when this individual is receiving a settlement from a lawsuit in which they were involved. The trust used in this scenario is commonly referred to as a “First Party or Self-Settled” special needs trust.

Both of these trusts, if established and managed properly, result in the trust assets being exempt when qualifying for government assistance. The trustee of these trusts must be granted sole and absolute discretion over the use of the trust funds for the sole benefit of the recipient of public benefits. This means that the trust must be worded so that the trustee is not required to make any payments of income or trust principal directly to the recipient of public benefits. However, the rust funds can be been used for almost any purpose, so long as it benefits the beneficiary of the trust, without causing any problems with those public benefits.

Third Party Special Needs Trusts

When the special needs trust holds assets that originally belonged to someone other than the disabled individual (a parent or grandparent, for example) the trust does not need to include a provision that states that any funds remaining in the trust at the death of the trust beneficiary (the recipient of public benefits) are available to reimburse the State for its Medicaid costs on behalf of that trust beneficiary since the time that the trust was established. Generally these trusts are created by the disabled person’s parents or other family members and are funded at the time of death. However, these trusts can also be a tool used to preserve assets in the event the parent of a disabled child requires assistance from Medicaid for in-home or nursing home care.

These trusts are designed so that a parent of a child with special needs can ensure their child is taken care of after they are gone, and the parent can ensure that any of the trust funds that are not used for the benefit of that child go to other members of the family when the disabled child passes away. This is the best of both worlds. Medicaid and SSI can assist the disabled individual while they are alive; the special needs trust can supply supplemental items and services to improve the quality of their life; and the trust funds remaining at the death of the disabled individual can come back to the family, without Medicaid or SSI having any claim to any of these funds.

First Party (Self-Settled) Special Needs Trusts

A special needs trust that holds assets originally belonging to the recipient of public benefits, such as Medicaid and SSI, must meet certain requirements if it is not to interfere with eligibility for those public benefits:

  1. The recipient of public benefits must be less than sixty-five (65) years old at the time the trust is established, or the recipient of public benefits must have become disabled prior to turning sixty-five (65) years old.
  2. The special needs trust must be established by the individuals themselves, a parent, grandparent or guardian of the recipient of public benefits, or by a court.
  3. The special needs trust must be irrevocable.
  4. The trust must include a provision that states that any funds remaining in the trust at the death of the trust beneficiary (the recipient of public benefits) are available to reimburse the State for its Medicaid costs on behalf of that trust beneficiary since the time that the trust was established.

Although these trusts require a payback clause to the State of Indiana, there are still essential and useful planning tools. The funds in these trusts are exempt during the life of the individual and can be used to provide items and services for that individual to improve their quality of life, without jeopardizing eligibility for public benefits, such as Medicaid and SSI. Thus, the individually continues to receive their government assistance, but can also use these additional funds to provide for a higher quality of life. Otherwise, the person would have to lose all government assistance, spend all of the trust assets on the insurance other items covered from these assistance programs, and then re-apply. With the use of the First-Party special needs trust they are able to keep all benefits in place while also have trust funds available for their needs.

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Moore Law, LLC, is based in Batesville. We serve clients throughout southeastern Indiana and the rest of the state. To get case-specific advice from a lawyer in an initial consultation, call us at 812-932-1227 or send us an email.

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