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Estate Planning for Your Special Needs Loved One

You’ve been designated as the trustee of a special needs trust. Or maybe you have a child with a special needs trust. You know that it’s important to plan ahead so that they don’t lose their benefits, but now what?

First party special needs trust, self-settled trust, d4a, d4c third party settled self-funded special needs trust, payback or pooled trust, supplemental non-support trust. Perhaps you’ve heard these terms before, but it’s likely that you don’t know the difference between them.

Often times I like to start at the beginning – keep it simple – especially surrounding such a specialized area of the law. A special needs trust is a trust that helps preserve a beneficiary’s eligibility for needs- based governmental benefits. These can be benefits like Medicaid and Supplemental Social Security Income.

The beneficiary, or the person with the disability, does not own the assets in the trust which is why he can remain eligible for his benefits. But keep in mind, it’s never that simple. There are asset and income limitations to be aware of.

When you act as trustee, it is your job to supplement any government benefits that the beneficiary is receiving or in which he could receive. You don’t want to replace them.

There are generally 2 types of special needs trusts that you should be aware of:

1. A first party special needs trust, interchangeable with a self-settled or self-funded trust, as well as a d4a trust. What this means is that the trust is funded with the assets or money or income that belong to the beneficiary. Often times it’s from an inheritance or a settlement from a lawsuit. In order for the assets not to qualify for Medicaid or social security purposes, there are several federal law requirements such as the beneficiary must be under the age of 65, the trust must be irrevocable, it must be for the sole benefit of the beneficiary and that the state or states which provided benefits during their lifetime will be reimbursed upon the beneficiary’s death or termination of the trust.

To confuse you even more, there are 2 types of first party trusts – payback and pooled. The pooled trust is when you use a non-profit, such as life enrichment trust, to act as trustee or manager of the trust. The difference is that the beneficiary’s account is invested with all of the other non-profits beneficiaries. I use life enrichment trust as my example because not only am I affiliated with them but because they are nationwide.

2. A third party trust, or a supplemental needs trust. This means that the trust is created and funded by someone other than the beneficiary. For example, if I had a child with disabilities who I wanted to inherit from me when I died, I wouldn’t leave it outright to them and I wouldn’t disinherit them. Instead I’d create this supplemental trust so that when I’m gone I know that they will be well taken care of and still receive their benefits. This trust does not have a provision regarding the states being reimbursed upon the termination of the trust.

There is much more to learn about planning for a loved one with special needs. Contact me to schedule a complimentary consultation to make sure that you are doing what you can to guarantee that your loved one is provided for long after you are gone.

I’ll see you soon, with more tips on creating your legal legacy.