A nearly universal concern for parents of children with disabilities or special needs is how their children will be cared for when they’re no longer able to do so. To a large extent, the quality of care received often depends on the amount of funds available to pay for it, and many parents save diligently throughout their lives in the hopes of providing the very best for their children after they’re gone. Unfortunately, working and saving may not be enough. Failure to plan, taking state and federal law into account, may mean that carefully accumulated savings are rapidly dissipated.
The reason is that many people with disabilities or special needs require some sort of government benefit in adulthood. These benefits may include Supplemental Security Income (SSI), vocational rehabilitation, subsidized housing, and Medicaid, among others. However, they may not qualify for those benefits until their personal assets have been “spent down” to a certain level, typically below two thousand dollars. Leaving assets to children with disabilities or special needs in a will guarantees these assets must be spent down before the beneficiary is eligible for need-based benefits. Even a typical living trust may not protect the assets — or the beneficiary.
Supplemental Needs Trusts (also known as Special Needs Trusts)
A supplemental needs trust, also known as a special needs trust may address this concern. It may enable a person who has a physical or mental disability, or a chronic or acquired illness, to have an unlimited amount of assets held in trust for his or her benefit. The assets of a supplemental needs trust (so called because it provides for care over and above that provided for by government benefits), may not considered “countable” when determining qualification for, or adjustment, of government benefits. While these trusts have been in use for many years, they were given official legal status by the U.S. Congress in 1993.
Not only may supplemental needs trusts preserve assets while also preserving the beneficiary’s ability to receive public need-based benefits, but like other trusts, they provide for someone to manage the assets if the beneficiary is unable to do so due to his or her disability.
There are two types of supplemental needs trusts. The self-settled, or first-party trust, is funded with assets that already belong to the beneficiary, or to which the beneficiary is legally entitled. For instance, if the beneficiary suffered a birth injury, the proceeds from a medical malpractice lawsuit for this injury could be used to fund a first-party trust. A third-party trust is funded with assets that belong to a third party, not the beneficiary or his or her spouse. Whether a supplemental needs trust is a first-party or third-party trust will have some impact on which benefits it allows a beneficiary to qualify for, so the decision of how to fund a trust should be discussed with an attorney.
Requirements for a Special Needs Trust
Congress has specified that special needs trusts or supplemental needs trusts must be irrevocable. A special needs trust is a separate entity with its own Federal Identification Number, and is not registered under either the beneficiary’s Social Security Number or the grantor’s. A special needs trust may be created for the benefit of an individual who is under 65 years old and who is, of course, disabled as that word is defined by Social Security standards.
Planning for the needs of a disabled loved one is a tremendous responsibility that should not be carried out without knowledgeable legal guidance. Contact the experienced estate planning and probate attorneys at Davis Schilken at 303-670-9855 to arrange a consultation at one of our two locations in The Denver Tech Center and Golden, Colorado. Our attorneys can help you determine whether a supplemental needs trust is right for your child’s needs, and help you put it into place to secure your child’s future and your own peace of mind.