Special Needs Planning
Special needs planning combines both legal and financial planning to ensure that family members with special needs or a disability have sufficient resources for their lifetime care and do not become ineligible for government benefits to which they may be entitled.
Special Needs Trust
Special needs trusts (also sometimes referred to as “supplemental needs” trusts) allow a disabled beneficiary to receive gifts, lawsuit settlements, or other funds and still be eligible for certain government programs. Special needs trusts are drafted so the funds are not considered an “available resource” in determining eligibility for public benefits. As the name implies, special or supplemental needs trusts are not designed to provide basic support, but instead to pay for comforts and “luxuries” that are not available from public assistance. These trusts typically pay for things like education, recreation, counseling, and medical attention beyond the simple necessities of life. (However, the trustee may use trust funds for food, clothing, and shelter if the trustee decides doing so is in the beneficiary’s best interest despite a possible loss or reduction in public assistance.)
Most often, special needs trusts are created by a parent or other family member for the benefit of a disabled loved one, whether that person is a minor or adult. Such trusts also may be set up in a Last Will or Living Trust as a way for an individual to leave assets to a disabled relative. Sometimes, the disabled individual can create the trust himself, depending on the program for which he or she seeks benefits.
Special needs trusts generally fall into two categories—first party (or self-settled) trusts and third party trusts. Within each of these categories are subcategories of trusts.
First Party Trusts
A first party or “self-settled” trust is one that is established with the trust beneficiary’s own money. Generally this money will be received as the result of an accident or medical malpractice lawsuit, or unexpected gift or inheritance.
Each public benefits program has restrictions that special needs trusts must meet so the beneficiary’s continued eligibility for public benefits is not jeopardized. Medicaid and SSI both have stringent income and resource restrictions making it difficult for a beneficiary to have substantial assets and still retain eligibility for benefits. But, both programs have “safe harbors” permitting the creation of a special needs trust. These safe harbor trusts fall into 3 primary types; Disability or d4A trusts, Qualified Income or d4B trusts, and Pooled or d4C trusts.
All first-party trusts have mandatory “payback” provisions which require the trust to reimburse the governmental agency for benefits provided by Medicaid. This is their primary disadvantage.
Disability or (d)(4)(A) Trust
The first of the self-settled trusts is called a Disability or d4A trust referring to the authorizing federal statute. This trust will be established with the assets of a disabled individual under age 65 by the disabled person, a parent, grandparent, legal guardian, or by court order. The trust assets must be used for the sole benefit of the beneficiary and requires a payback to Medicaid at the end of the beneficiary’s lifetime for any benefits that may have been received. Remaining assets may be distributed to surviving family members.
Qualified Income or (d)(4)(B)Trust
The next safe harbor trust is the Qualified Income or d4B trust. This trust is sometimes also referred to as a Miller Trust or QIT Trust. The Qualified Income Trust or QIT is used for Medicaid nursing home-related programs where the applicant is over the income limitation. The excess income is placed in the QIT, and the individual remains eligible for their government benefits. A QIT may be created by the beneficiary, the beneficiary’s spouse (without a power of attorney), another individual under the authority of a power of attorney, or by court order. The only permitted distributions from a QIT are the applicant’s Patient Responsibility (the portion of their income they must pay to the facility where they reside), a Personal Needs Allowance (currently $105), or Community Spouse Income Allowance. All funds remaining in the QIT at the end of the beneficiary’s lifetime are retained by the State.
Pooled or (d)(4)(C) Trust
The last of the safe harbor trusts is the Pooled or d4C trust. These trusts pool the resources of many disabled beneficiaries, and the trusts assets are managed by a non-profit organization. Unlike individual disability trusts (d4A), which may be created only for those under age 65, under current Florida Medicaid law, Pooled Trusts may be created for beneficiaries of any age and may even be created by the beneficiary, if competent. In addition, although technically a “payback” trust, Medicaid does not have to be repaid at the beneficiary’s death as long as the funds are retained by the Pooled Trust organization for the benefit of other disabled beneficiaries.
Pooled Trusts have recently come under attack by the Social Security Administration for beneficiaries over age 65. As a result, an over-age-65 applicant for SSI benefits cannot effectively use a pooled trust to qualify for SSI benefits.
Third Party Trusts
Third Party Trusts are trusts created with the assets of someone other than the trust beneficiary—a third party. Third party trusts can be created as Stand Alone Trusts or as Stand By Trusts. A primary benefit of a third party trust is there is no Medicaid payback requirement at the end of the beneficiary’s lifetime. Third Party Trusts are the most desirable for special needs planning because all remaining trust assets may be left to family members or charities of the Trustmaker’s choice.
Stand Alone Trust
A Stand Alone trust is created as a form of Living Trust—while the Trustmaker (also referred to as a settlor, trustor, or grantor) is living. A Stand Alone Trust can be revocable (capable of being amended or revoked) or irrevocable (cannot be amended or revoked). The type of Stand Alone Trust that is best will depend on the needs and circumstances of the individual Trustmaker. Each Stand Alone Trust can be customized to the needs and desires of the Trustmaker to ensure the trust beneficiary is getting the best possible quality of life. Another possible benefit of the Stand Alone Trust is if the law were to change and the trust were already in existence, it would likely still be effective despite the change to the law.
Stand By Trust
A Stand By Trust, also known as a testamentary trust, is created as part of a Last Will or Living Trust, generally that of a parent or family member of the disabled individual. Like the Stand Alone Trust, it can be customized to meet the needs and desires of the Trustmaker regarding the quality of life of the beneficiary. Possible drawbacks to Stand By Trusts include the delays associated with probate and there the lack of assurance the laws won’t change in a way that affects the viability of a Stand By Trust.
Special Needs Planning Process
Educational Workshop (Optional)
Join us in our classroom for an interactive workshop designed to educate families about general estate planning principles, the federal estate and gift tax structures, and the importance of implementing and maintaining a relevant estate plan. We highly recommend you attend an educational workshop, but it is optional. Click here to see when our next estate planning workshop will be held. (Complimentary)
Discovery and Decision Dialogue
Discuss client and attorney commitments; you teach us about you and your family. We teach you about the law and how it affects your family. Then, together we can explore optimal planning solutions. (One and a half hour one-on-one consultation. Consultation Fee $200.00 – Applied to planning fee.)
Counselling and Design Meeting
We will work with you, your family, and advisors (optional) to custom design your plan. (1/2 of your fee is due.)
We review and sign all drafted documents. (Remaining 1/2 of your fee is due.)
Below are two flow charts of the administration process that our attorneys and team members will help guide you through step-by-step.
and Planning, and Mediation.