Estate Planning, Probate, Small Business, & Asset Protection

Planning for Loved Ones with Special Needs

Planning for Loved Ones with Special Needs

Public Benefits Subject to Strict Asset & Income Limits

Individuals with special needs are often eligible for public financial assistance and healthcare such as:

  • Supplemental Security Income (SSI)
  • Arizona’s Medicaid programs such as Arizona Health Care Cost Containment System (AHCCCS) or Arizona Long Term Care (ALTCS)
  • Veterans Administration (VA) benefits

These can provide thousands of dollars per month to those who cannot provide for themselves, but also require the recipient to have around $2000 or less of assets to be eligible.

When families consider leaving an inheritance to special needs individuals, they face the dilemma of making them ineligible for public benefits or disinheriting them.

The Special Needs Trust Solution

There is a useful tool called the “Special Needs Trust” or “Supplemental Needs Trust” (SNT) which is an irrevocable trust that holds assets in trust to supplement or help their vulnerable loved one.  Trust assets are not counted as assets of the beneficiary and therefore do not affect eligibility for benefits.  The SNT should supplement or add to the public benefits received, not replace them.  For example, if a disabled person cannot afford dental care, because it is not covered by AHCCCS,  The SNT can pay the dental office directly without handing money directly to beneficiary.

Different Types of Trusts

A common SNT is part of a parent’s Revocable Living Trust and creates the Special Needs Trust once both parents have passed away.  The SNT is funded with a portion of the parent’s assets, or perhaps a life insurance policy.  This is called a Third-Party SNT because it is created and funded by someone other than the disabled beneficiary.  If the disabled beneficiary dies with assets left in the SNT, then other named family members, like siblings, can inherit what is left.

There is a First-Party SNT that is funded from the beneficiaries’ own assets.  There is nothing preventing an individual from funding their own SNT, but keep in mind that when the beneficiary dies, any assets left over are subject to State Recovery efforts where the State will take the rest of the assets instead of allowing other family members to receive.  A Third-Party SNT is not subject to state recovery.

Considerations when Creating a SNT

In December of 2016, The 21st Century Cures Act was passed by Congress and allows disabled individuals to Create and Fund their own SNT.  In the past, they could always fund their own SNT, but a grandparent, parent, or guardian had to create the trust. This new law recognizes that disabled individuals with mental capacity should be able to both fund and create their own SNT.  State Recovery is still a factor to consider when deciding between a First & Third Person SNT.

Choosing a responsible and trustworthy Trustee is important because they have total discretion on how and when to help the beneficiary.  Specific standards used in other trusts requiring the Trustee to pay for “healthcare, education, maintenance, and support of the beneficiary” are not used because they risk the loss of government benefits.  Considerable discretion is therefore given to the Trustee.

You can choose a corporate Trustee if the assets of the Trust support such a choice, or you can choose more than one Trustee by naming Co-Trustees.

Thoughtful Life-Long Solutions are Needed

Ultimately, Special Needs Planning can be an emotional process for families but it is important to design a plan that achieves your goals of creating a life-long solution that will protect your child, grandchild, or loved one.  By undertaking thoughtful Special Needs Planning, you…

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