Disclaimer: You should always check with your financial or legal professional before estate or financial planning especially when dealing with as sensitive and advanced subject such as Children with Special Needs. This is the Third Part of a multi-post series on planning for children with special needs.
This post is an introduction to 3rd Party Special Needs Trusts which are also sometimes referred to as Supplemental Needs Trusts. Let me start with this caveat – this area of planning involves both federal and state statutes so consider this post a high view of Third Party Special Needs Trusts. It should be noted that there is a type of trust known as a First Party Special Needs Trusts – we will go into them another time.
Why Do You Need a Special Needs Trust?
There are a myriad of governmental benefits that are available to those that meet the government’s definition of disabled. Specifically, if your child receives (or is expected to receive SSDI) then it is likely that they will, at some point, receive Medicaid. Medicaid is a means based governmental benefit, so if you have more than $X the benefits are stopped. At this point you should be asking, What is your point? From wikipedia
Generally, a properly drafted third-party, discretionary trust is not countable as an asset available to the beneficiary receiving Supplemental Security Income (SSI) and/or Medicaid benefits. Such a trust must be created by a party other than the SSI/Medicaid beneficiary, must not receive any assets belonging to the beneficiary, and must be restricted (not accessible or available) to the beneficiary.
So, any money we get into this “box” doesn’t count towards the assets to determine whether the child (or adult) is eligible for Medicaid.
Special Needs Trusts at Death
Lets say you have 3 children named A, B, & C. C is disabled according to the Government’s Definition. Two Common Situations that are WRONG:
- Your Will gives all Three Children Equally –> Well then C will be cut off from Medicaid and the amount given to him or her will be eaten by medical bills QUICKLY.
- Your Will gives to A & B in hopes they take care of C –> HORRIBLE IDEA! What happens if A gets their share drops it in her marital bank account and then gets divorced? I’ll tell you what happens that ex-son in law is taking a piece. What happens if B’s Spouse doesn’t feel like taking care of C? What happens if A starts doing the crack?
I truly feel that people fail to set up a Third Party Special Needs Trust in their Will for a couple reasons (none which are good):
- Ignorance – not a bad type of ignorance, just a lack of education – if you know someone in this category you better send this post over to them!
- Wrong type of Attorney – SNTs are not in the ‘run of the mill’ Will or estate plan, nor are they in those ridiculous home Will Kits.
- Denial – This is the WORST excuse.
If you have a child with special needs that may need government benefits one day, it is your responsibility to get your Will in Order
Special Needs Trusts During Life
You might be thinking, alright I get why I need it for my “death plans” why do I need to set up an inter vivos Special Needs Trust? By the way, inter vivos, just means during life.
Two Main Reasons:
- Even if you do not want to fund the trust – you should set it up as a receiver from other people. For example – you can create one and then when Rich Uncle wants to gift some money to the child with special needs he can without messing up that child’s benefits.
- You are preparing for your child’s future with a Life Insurance Policy to supplement the child’s needs once you die.
Some Additional Notes
These types of trusts should be drafted by an attorney with experience. Do not be their first it will cost you an arm and a leg while they learn the Ins and Outs.
Hope you enjoyed this is a brief introduction to Third Party Special Needs Trusts