Special Needs: What are your options?

Most of us either have a relative or know someone who has a relative with special needs, and for these folks, estate planning may be especially important. Many individuals with special needs are unable to manage their assets, if any, and family members are often concerned about what will happen to their loved ones if a caregiver passes away. Long-term planning is essential to ensure that a relative with special needs is cared for and has the resources to live a happy and fulfilling life.

Many individuals with special needs receive government assistance, often in the form of Medicaid or Supplemental Security Income (SSI). If a will or trust is not properly drafted, the assets they receive from the will or trust may negatively impact the amount of money they receive in the form of public benefits. For instance, an individual with special needs may be completely ineligible for public benefits if he receives financial assistance beyond what the government offers, including assistance from a trust established for his benefit.

In order to avoid that situation and ensure that family members with special needs receive all of the public benefits that they’re entitled to, relatives may set up a supplemental needs trust, which is sometimes called a special needs trust.

Supplemental needs trusts allow individuals with a physical disability, mental disability, or chronic illness to have an unlimited amount of assets held in trust for their benefit and to receive all the government benefits they are entitled to. Typically, this will work on a “sliding scale.” This means that the funds in the supplemental needs trust will cover the needs of the individual that government benefits do not cover. For example, if Medicaid and SSI cover 40% of the expenses for an individual with special needs, the funds in a supplemental needs trust will cover the remaining 60%.

Family members must exercise great discretion in choosing a trustee—or, more helpfully, multiple trustees—to manage the trust. It may be beneficial to employ a team of professional trustees to manage different aspects of the trust and make sure that all of the bases are covered; this may include a corporate fiduciary trustee (like a bank or trust company), a care manager, a financial advisor, and a lawyer. It is crucial that supplemental needs trusts are properly managed and the assets are invested wisely. A loss of assets may be extremely detrimental to the beneficiary, and often these trusts have to last a lifetime. There is plenty of room for error without the proper guidance, and family members should choose carefully when deciding the terms of these trusts.

Supplemental needs trusts must be carefully drafted in order to ensure their effectiveness. These trusts require specific language to avoid conflicts with public benefits, and if written properly, guarantee that that funds in that trust may only be used for the benefit of the person with special needs. If you have a family member with special needs who would benefit from a supplemental needs trust, please contact an attorney who is familiar with creating these trusts and can offer guidance for establishing one.