Many of us have a family member or close relative with a disability. We'd like to leave a portion of our estate to help this family member but are unsure how best to do this. Should we just make an outright gift? What about a trust? Let's take a look at some of the options.
The simplest method of assisting the family member is an outright gift, either during lifetime or via our will. However, if the disabled individual is already receiving government benefits such as SSI (Supplemental Security Income) or Medicaid, additional assets could cause them to become disqualified from those programs. On the other hand, some programs such as SSDI (Social Security Disability Insurance) are not "means tested," i.e., are not affected by the assets or income of the recipient.
Since a person may not need to receive "means-tested" benefits today but may require them in the future, the safest route is to leave them your gift inside a trust. The trustee of the trust will hold your money, invest it, and distribute it to your intended beneficiary as needed, without causing disqualification from government benefits. Such a trust is called a Special Needs Trust or Supplemental Needs Trust, since it is designed to supplement---and not replace---government benefits. It can be created today and funded with money or other assets now.
Such a trust is called an "inter vivos" trust. You can serve as the trustee or permit someone else to serve as trustee; the trust can be revocable or irrevocable; and you can retain power to change the ultimate distribution of the trust assets or not. All of these decisions affect the income tax and estate tax treatment of the trust. If you choose to make the trust irrevocable, then it will have its own federal tax i.d. number and can be set up to be taxed either to you, the trust itself, or to the beneficiary.
You can also set up the trust within your will, to be funded upon your death. Such a trust is called a "testamentary trust." In this case, you will not have a separate trust document, since the terms of the trust will be contained within the will itself.
Because the rules of each state vary as to whether the terms of the trust will cause or not cause disqualification, you really must work with an experienced estate planning or elder law attorney to draft this trust for you. The attorney will be familiar with both the federal and state programs that might be of benefit at some point to your family member, what the rules are under both federal and state benefits laws, how trusts work, the different income and estate tax ramifications of each trust option, and how best to achieve your objectives.
Examples of distributions that will not cause the beneficiary to lose or have reduced government benefits:
The above is by no means an exhaustive list, but is only intended to give you some idea of what your gift via trust can be spent on to make your family member's life so much better, without causing disqualification. As you can see, your gift will have wide-ranging benefits for your family member and will improve their quality of life for many years.
Attorney K. Gabriel Heiser has devoted his legal practice to Medicaid planning, elder law, and estate planning for the last 23 years.
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