Many people desire to give gifts and bequests to friends or relatives with special needs. But you must consider whether the gift or bequest will cause the beneficiary to lose their government benefits. Ensuring the beneficiary will continue to receive their government benefits, such as Medicaid or Supplemental Security Income (SSI), may require you to give the gift or bequest through a special needs trust, also known as a supplemental needs trust.
When providing such a gift or bequest you intend to improve the comfort of the person with special needs, not relieve the government of its burden. However, certain government benefit programs require the person be financially needy. If the person with special needs has assets in excess of $2,000, then the beneficiary will not qualify for Supplemental Security Income (SSI). So, if you gave your child with autism $50,000, then their SSI, Medicaid, and other government benefits could stop and they would need to live on your $50,000 gift until their assets are back to being under $2,000. At the end of the day, the only one benefiting from such a gift would be the government. Because of this and similar issues, attorneys developed planning techniques by which the person with disabilities will receive the benefit of your contribution without losing their medical and other benefits.
While some choose to just give the gift outright to a third-party who promises to care for the person with special needs, this obviously could cause issues. Of course, the third-party may decide they would rather use the funds for another purpose, but they could also lose the funds due to their death or divorce or to their creditors. The person with special needs would be much better served if you protected their gift in a trust that’s insulated from creditors, caregivers, and the government.
To protect the assets, the special needs trust is crafted so the beneficiary will not have unrestricted access to the funds. In fact, the trustee may be able to completely shut off the flow of funds to the beneficiary if it jeopardizes the person’s government benefits. When the trust meets the requirements, federal law will not allow the various agencies to consider the trust’s assets as a countable asset of the beneficiary when determining eligibility. Hence, the trust will be able to assist the beneficiary with certain expenses to improve their quality of life without allowing the government agencies to stop providing the person’s basic benefits.
The special needs trust must provide language making it impossible for the person with special needs to have unrestricted access to the funds. It must also give the trustee full discretion regarding how the trust’s funds are distributed. The trust must state that it is only intended to fund the supplemental needs of the person, rather than their basic support, which are the expenses covered by SSI and Medicaid. Further, the trust document should state that the trustee must administer the trust so the beneficiary’s right to government assistance is not affected. The special needs trust can either be established at death through your will or as an intervivos special needs trust, meaning you establish it while you are still alive. The slightest mistake could jeopardize the trust in its entirety, so an untrained person should never consider drafting these documents.
The best trustee for a special needs trust is generally going to be close family members of the beneficiary, since they would, for one, care about the beneficiary’s well-being and, second, would be most familiar with the beneficiary’s individual needs. Consideration should be given for the beneficiary’s predicted life expectancy, and successor trustees to assume the responsibilities over time should be named if possible. Nevertheless, flexibility may be a better course in some instances. While the person with special needs may be the focus of your attention, the trustees, family members, and other loved ones who will likely care for him or her should be considered. Those persons’ expenses can be considerable in assisting the person with special needs, and, if possible, should be relieved.
Numerous people can fund a single special needs trust. By establishing the trust early, you will be able to personally transfer funds to the trust and will also be able to provide relatives with instructions on how to properly direct money for the benefit of the person, i.e. “I hereby leave”… “to the Jane Doe Irrevocable Trust”. Further, you will be able to provide the trust’s name as the beneficiary of any investment account or life insurance policy.
When possible, the funds should always go directly into the trust rather than first to the person with special needs. There are many restrictions placed upon “self-funded” trusts, including requirements that the person be under sixty-five (65) years of age when funded and that, following the death of the beneficiary, the trust’s unused funds must be given to the state to the extent necessary to reimburse medical expenses it has paid, rather than other relatives or persons you may wish to benefit. Further, being a trustee for a “self-funded” special needs trust is much more difficult than an earlier formed trust, because Maryland places very burdensome requirements regarding documenting and reporting the use of trust funds. Hence, it cannot be overstressed that you should form the trust as soon as possible so every person who may want to contribute to the trust can do so without making the mistake of giving the funds directly to the person. Even if the person does not currently qualify for government assistance, there is always the possibility they may in the future. In the meantime, anyone who may want to give a gift or bequest to the person may have no way of properly directing the gift.
Nonetheless, when a person with special needs finds comes into possession of funds, whether from an inheritance, a lawsuit, or other means, they would still want to put funds into a special needs trust. Even self-funded special needs trusts provide a substantial benefit to the person and allow the protection of the assets during their lifetime.
Using proper legal and financial planning can ensure that your relative or loved one with special needs will have an opportunity to enjoy a better life than otherwise provided solely by government assistance.
For more information about forming a special needs trust, please contact Jeff Rogyom at (410) 929-4578. Please review the Disclaimer page regarding the use of this website and its information.