Special Needs Trusts: Estate Planning Strategies for the Special Needs Family
Special children require special estate planning. If the child is receiving government benefits, it is especially important to let family members know that their well-meaning gifts must be carefully planned. For example, a well-meaning loved one could accidentally disqualify the child’s government benefits.
For example, Mike is 22 years old and suffered a birth defect that makes it difficult to walk. He lives in subsidized housing and makes ends meet by working at a local grocery store a few hours each week.
Sometimes his parents help him with money, but Mike also receives a monthly Supplemental Security Income (SSI) payment of $800.
Mike’s parents created a first party Special Needs Trust (SNT) to provide for his care and needs. Recently Mike’s Aunt Joan died. Unbeknownst to Mike’s parents, Joan left Mike $60,000 in her trust.
Aunt Joan’s thoughtful gesture ended up creating serious problems for Mike. Suddenly he had more than $2,000 in the bank – which can disqualify him from receiving SSI. Luckily, it was not enough to disqualify him for his subsidized apartment, or he could have ended up out on the street.
This is a serious problem for a special needs family.
Strategies for the special needs family
In this case, there are a number of strategies that will permit Mike tp benefit from his Aunt Joan’s gift and still keep his aid:
- The first party Special Needs Trust that Mike’s parents created includes a state reimbursement or “payback” provision. If Mike transfers the monetary gift from Aunt Joan into the Trust, his eligibility will be undisturbed.
- Mike can spend all the money before the end of the month in which he received it.
- Mike can purchase or invest in exempt resources, such as an automobile. If Mike inherits enough money, he can use the gift to buy a residence for himself.
Consider the consequences of large gifts
Things would have been much simpler if Aunt Joan had left the money to the SNT Mike’s parents created for him – there would have been no disruption in or threat to his eligibility for certain services.
It’s important that parents let their friends and relatives know about any Special Needs Trust they may create for their special needs child. Parents should also make those loved ones aware that any contributions they wish to make need to go into that Trust so the child’s access to public benefits won’t be jeopardized.
There are many other considerations when you are planning for a special needs child. This article was meant to make you aware of a few of them. For more information, please feel free to contact my office.
Janet L. Brewer, JD, MBA, LLM-Tax, has practiced California estate, gift-planning, and probate law exclusively since 1991. Janet has a "10.0/10-Superb" Avvo Rating, is a member of the Society of Trust and Estate Practitioners, has been named a Northern California SuperLawyer several times, and is a Founding Member of WealthCounsel. More »