As developmental issues like autism, down syndrome and attention deficit disorder become more frequently diagnosed in their children, parents and guardians should be concerned about care for their children after they have passed away. In addition, many public benefits plans, which such children may be eligible for, are asset based. Many common estate planning vehicles, if used for these children, will result in the child’s disqualification from programs like Supplemental Security Income (SSI) , Medicaid and Social Security Disability Income (SSDI). The purpose of special needs planning is to create a fund of money to care for a child for his or her lifetime without the concern of disqualification.
There two types of estate planning vehicles, in the form of irrevocable trusts, that provide the proper format for special needs planning. One type of special needs trust is called a “third party” special needs trust because it is created by a person other than the special needs individual with a special set of instructions for use of the trust for the benefit of a special needs individual. The trust provisions state that a Trustee holds any assets inherited by the special needs individual in a separate trust and that those assets are only to be used to supplement the lifestyle of the special needs individual, but that such assets cannot be used to replace benefits which would otherwise be provided through public benefits. This basic structure and language is how the trust prevents the special needs individual from being disqualified from any state or federal disability benefits he or she is receiving. In addition, the trust sets forth the distribution of any remaining assets upon the death of the special needs individual.
The second type of special needs trust is a “first party” or “self-settled” special needs trust. This trust is funded by the special needs individual using his own assets. The most common situation where a self-settled special needs trust is needed is where the individual is receiving a settlement from a lawsuit usually stemming from the cause of his disability. A major difference between the third party and self-settled trusts is that when the disabled person passes away, any funds remaining in the self-settled trust must be used to “pay back” the state for any medicaid benefits provided to the individual during his or her lifetime. Another difference is that a self-settled trust beneficiary must be disabled whereas with a third party trust, the beneficiary does not necessarily have to be receiving benefits or considered disabled at the time the trust is created.
As with any estate plan, every family situation with a special needs child is unique and requires customized planning. Please contact our office to schedule an appointment to discuss your specific situation.