Since I started practicing elder law, one of the most rewarding aspects of my career has been helping clients with special needs or special needs family members. In this way, becoming an attorney has given me the opportunity to use my skills and knowledge to help others increase the quality of their life or help ensure their loved ones have some of the little extras in life while remaining eligible for public benefits.
One of the tools that can be used to help families with special needs individuals are Special Needs Trusts. A trust is a legal arrangement where one person or entity manages something for the benefit of another person. There are three important parties involved in the creation of a trust; a settlor, or “creator” of the trust, a beneficiary who the settlor intends to benefit through this arrangement, and a trustee who manages the things the trust owns.
There are a number of different trusts, and even a number of different types of Special Needs Trusts. One type of Special Needs Trust is referred to as a “third party” trust. In this type of trust, the settlor is a third party, meaning they are not the same person as the beneficiary with special needs. Sometimes parents or grandparents of special needs children will create this type of trust to benefit their child during their lifetime. Other times, the parents or grandparents of a special needs child are concerned about what will happen when they’re gone and create a third party Special Needs Trust in their will. This is called a “testamentary”[i] trust.
A properly written testamentary Special Needs Trust will ensure that an individual with special needs will continue to receive certain public benefits that they are entitled to, such as SSI and Medial Assistance, while allowing a trustee to use funds from the trust to enhance the quality of their life. Sometimes these trusts are called “Supplemental Needs Trusts” because the goal is to supplement and not supplant public benefits that the special needs individual may be entitled to, helping to maximize, as much as possible, the quality of their life by paying for the extra things that Medical Assistance or SSI will not pay for.
Sometimes families do not recognize the need to plan ahead. On occasion, a parent or grandparent’s good intentions can lead to a dilemma for the individual with special needs. Recently, a client came to our office who stood to inherit from one of their family members outright. Receiving the inheritance would jeopardize the client’s benefits because of an asset limitation. The client had thought about disclaiming the inheritance, however, disclaimers are essentially treated as gifts and also jeopardize some public benefits.
Solutions exist to these issues, as well. Another type of Special Needs Trust, called a “payback” trust or (d)(4)(A) trust can be created that allow certain parties (parents, grandparents, guardians, and courts) to “settle” a trust with the disabled individual’s funds. Conspicuously absent from the list of individuals who can settle a (d)(4)(A) trust is the disabled individual. This fact acts to highlight the complexity of the law regarding Special Needs Trusts.
(d)(4)(A) trusts are often an unattractive option because they must contain a provision that provides that the Department of Public Welfare (DPW) will be paid back up to the amount of assistance provided to an individual through public benefits upon their death. They also must be approved by the DPW and so this acts as an additional hurdle to clear for an attorney when helping a special needs individual in this situation.
Another possible solution is a creation of an account for the special needs individual with a “pooled” trust. Pooled trusts are trusts established by non-profit organizations that are pre-approved by the government. The special needs individual gets their own account with the trust and the non-profit organization acts as trustee. An account manager for the trust can help the special needs individual purchase things that enhance the quality of their life without jeopardizing their public benefits. When the disabled individual dies, the trust is able to retain the balance of the individual’s account and use it to help other special needs individuals. These trusts are able to keep the money as opposed to paying back the DPW.
October is Special Needs Law month. I hope that this article will help to explain some of the basic concepts of planning for individuals with special needs and their families. Because of the complexity of this area of law, please do consider making an appointment with an attorney who has knowledge of the issues affecting special needs individuals.
[i] Testamentary means created in, or by a will.