Many people in the United States are currently considered disabled as defined by Social Security. Their disability may entitle them to receive various benefits that are provided by the federal and state government. Some of these benefits, such as supplemental security income, Food Stamps, housing or fuel assistance, may only be available to the disabled person if he or she meets eligibility requirements that require the disabled person to have income or assets less than a certain amount. Should a disabled person receive an inheritance outright, the inheritance almost always causes the asset limit to be exceeded and benefits to be lost. Fortunately, with proper planning it is possible to leave an inheritance to a disabled person and not disrupt their benefits in any way.
Often, a parent or family member of a disabled person will choose to leave the disabled person’s inheritance to another family member, who is then expected to provide for the disabled individual. This plan may work if the family member carries out their obligation as anticipated, but this plan in no way guarantees that the disabled person will receive the benefit of the assets left with the other family member. As such, the best plan includes a Special Needs Trust, which is designed to benefit the disabled person and simultaneously prevent the disabled person from losing any available governmental benefits.
A Special Needs Trust should become the primary vehicle for providing for the needs of the disabled person to the extent that those needs are not otherwise provided for by public benefits or any other source. Thus, the funds held in a Special Needs Trust are typically used to provide for additional quality of life. For example, the trustee of a Special Needs Trust may make distributions to provide household furnishings and repairs, educational opportunities, travel (with a companion, if needed), professional services, non-food grocery items, pet supplies, recreational activities, a modest automobile and operating expenses for the automobile, holiday decorations and events, and the like. In addition, in the event that governmental benefits are ever diminished, trust assets would still be available for the benefit of the disabled person. Upon the death of the disabled individual, any assets remaining in the Special Needs Trust would be distributed in accordance with your wishes as stated in the trust.
Should you choose to leave an inheritance outright to a disabled person, the disabled person may also have the ability to create a Special Needs Trust or to have one created for their benefit.
Nonetheless, the disabled person may lose benefits while the Special Needs Trust is being created. In addition, upon the death of the disabled person, any Medicaid benefits paid on behalf of the disabled person will first need to be repaid to the Commonwealth before any distribution can be made to any other family member. As such, it is clear that the best plan includes a Special Needs Trust created by you as opposed to a Special Needs Trust created by, or for the benefit of, your intended beneficiary.
In addition to establishing a Special Needs Trust, if the disabled person is your child, it may be important to establish a Care Plan. Such a plan provides the guardian and trustee with knowledge of the child’s needs. This plan should be updated every year, and a copy should be kept with the Special Needs Trust. A Care Plan typically sets forth educational, social, financial and other information relative to the daily needs and abilities of the child. This information should be helpful to the trustee and guardian when determining the best interests of your child. Also, a Care Plan may detail your wishes for the future as your disabled child continues to age. © 2010 Gina M. Barry, Bacon Wilson, P.C. 2 Planning to ensure that a disabled family member does not lose governmental benefits as a result of your generosity has never been easier. If you intend to leave an inheritance to a disabled beneficiary, you should ensure that your plan includes a Special Needs Trust for their benefit. Otherwise, the benefit that you intend to leave may come with an unintended burden because special needs require special planning.
Gina M. Barry is a Partner with the law firm of Bacon Wilson, P.C., Attorneys at Law. She is a member of the National Association of Elder Law Attorneys, the Estate Planning Council, and the Western Massachusetts Elder Care Professionals Association. She concentrates her practice in the areas of Estate and Asset Protection Planning, Probate Administration and Litigation, Guardianships, Conservator-ships and Residential Real Estate. Gina may be reached at (413) 781-0560 or GBarry@BaconWilson.com.