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Special Planning for Special Needs: THE SPECIAL NEEDS TRUST



As a loyal blog reader (By the way, you look great! Have you lost weight?), you already know about the importance of setting up your personal estate plan. But you may not have realized that you can include provisions for those with special needs who depend on you.

Many of us have a family member with a mental illness, or a developmental or physical disability. We may also have an aging parent or grandparent who is (or will be) dependent on government assistance programs. We may provide support or care to those family members. Consequently, because we are loving and caring people, we may be concerned about what happens to them when we’re gone.

Special needs require special planning. Protecting access to state and federal benefits is a common concern when planning for a disabled family member’s future. Means testing thresholds for some state and federal programs can be very low, meaning a disabled person could be easily disqualified from receiving funds or services. For example, government-subsidized housing or nursing care may be the only way an aging parent is able to function. An outright financial gift might put them over the means threshold and disqualify them from that subsidized housing or care.

One way to simultaneously avoid this disqualification problem while also providing for their future care is to set up a Special Needs Trust (SNT) for their benefit. There are two basic types of supplemental SNTs: self-settled and third party. Self-settled SNTs are subject to certain legal requirements and, as the name implies, must be funded with the beneficiary’s own financial resources. The third party SNT is very commonly used because of the benefits it offers. It can be set up by anyone on behalf of the disabled beneficiary. It can be funded with (for example) gifts, inheritance, and/or life insurance proceeds. Its funds are not counted as a resource for SSI and Medicaid (Medi-Cal) benefits qualifications purposes. The trustee would distribute the funds for the beneficiary’s care and needs above and beyond those provided by the government.  Unlike self-settled SNTs, they are not subject to a payback provision requiring the trust to reimburse the government for the value of benefits expended on behalf of the beneficiary at the beneficiary’s death. Put simply, they don’t have to pay the government back.

If you’re thinking something along the lines of “holy crap, this sounds terribly complicated, but also remarkably useful,” please contact an estate planning attorney to help guide you through the requirements and considerations when setting up this type of trust. It requires forethought and effort, but can provide you with peace of mind and the ability to sleep at night, which is priceless.

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