Individuals with mental or physical disabilities oftentimes receive government benefits based on their financial needs. Most of the time these benefits are insufficient to meet the disabled person's needs, and relatives and friends want to make gifts to a disabled person or make a bequest to that person in a will or trust to supplement the government benefits that the individual receives. However, by gifting directly to the disabled person, the friend or relative may actually decrease the amount of benefits or even eliminate the person's ability to receive government benefits for a period of time.
Before making such a gift you need to consider the effects that the gift or bequest will have on any government benefits that the individual receives and that person's ability to manage the funds you intend on leaving him. Rather than making a direct gift or bequest (through a will or trust) to that individual, you should consider establishing a special needs or supplemental needs trust to hold the gift or bequest.
Using a special needs or supplemental needs trust allows you to leave considerable assets to a disabled individual (whether a minor or adult) while ensuring that: (a) the benefits that the individual receives will not be affected by the gift or bequest; (b) the government cannot assert a creditor claim against the property held in trust; and (c) the person receiving the assets will not improperly use or manage the assets.
The amount of financial assistance or benefits that a disabled person receives from the government is calculated based on the assets that the individual owns or has the ability to access. Gifts or bequests made directly to a disabled person may either decrease or eliminate certain types of assistance or benefits. Essentially, these gifts or bequests increase the amount of assets that the individual owns which results in the benefits that the individual receives being reduced or eliminated until the assets gifted or bequeathed to the individual have been used up.
By placing the gift or bequest in a special needs trust or supplemental needs trust for the benefit of the disabled person the property placed in the trust can be used to enrich a disabled person's life by providing for that individual's needs above and beyond the government benefits that the individual receives without reducing or eliminating the benefits received. The assets owned by the trust are not considered the disabled person's assets since the individual does not have any control over the assets and, by the terms of the trust, the assets cannot be used to provide for the disabled person's basic needs (food, housing, certain utilities, and clothing).
A properly drafted special needs or supplemental needs trust ensures that the disabled person does not have any control over the trust assets or the ability to compel distributions from the trust. Essentially, the trustee of the trust can use the assets to purchase various items and services such as: special medical equipment for the disabled individual not covered by the government benefits, phone bills and cable bills, computers, maid services, and capital improvements to the individual's residence (such as constructing a wheel chair ramp or installing other assistance equipment). The ability to provide these types of amenities to a disabled person allow that person to use the benefits that he receives from the government to obtain better housing, clothing and maintain a higher standard of living.
Even in circumstances where an individual is disabled but does not receive government benefits a special needs trust can be used to help manage assets that the individual could potentially waste by improper spending or mismanagement. The trustee determines when to make distributions and how to make these distributions. For example, the trustee pays a cable bill or phone bill directly rather than giving the funds to the individual. Also, the beneficiary cannot order the trustee to make a distribution, making assets held in a properly drafted special needs trust unavailable to the beneficiary's creditors.
Consequently, before giving cash or other assets to a disabled person you should consult with an attorney to determine the best and most efficient way to enrich that person's life. It may require establishing a trust to benefit the disabled person throughout their lifetime or it may simply entail paying the person's phone bill directly.
©12/16/2010 Kevin J. Tillson. All rights reserved.
Kevin J. Tillson is a Shareholder and Associate Attorney with the law firm Hunt & Associates, PC in Portland, Oregon. He is licensed in Oregon and Washington and maintains a general practice including estate planning, business law, real estate law, family law, misdemeanor criminal defense and personal injury. For additional information, please check out the company's website: http://www.huntpc.com
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