A Special Needs Trust plays an instrumental role in preserving a person living with a disability's lifestyle and financial security. A properly drafted Special Needs Trust opens doors for an individual to become a beneficiary of supplemental resources through gifts and inheritance while maintaining eligibility for government benefits e.g., Supplemental Security Income.
Did you know there are a number of different types of special needs trusts (SNT)? Each is used for a particular circumstance. Think of an SNT as a tool you use for planning. Just as you use a hammer to nail or a screwdriver to screw, the proper tool needs to be selected to plan for each unique family. Here we identify the two most frequently used trusts. First-Party and Third-Party Special Needs Trusts.
Also known as a self-settled SNT or a Disability Trust in California. This type of trust is used “reactively”, meaning that it is created when we react to the situation of a person living with a disability who has received money or resources directly in their name.
This situation commonly occurs when a person receives an overpayment from SSI or a well-intentioned inheritance from a grandparent. Can you believe that an overpayment from SSI in excess of $2000 would make the recipient ineligible for SSI until the amount was spent below the $2000 threshold? Strange, but true.
A first-party special needs trust allows the person to “protect” assets in the SNT from being considered a “countable resource” by Social Security during their lifetime.
They can maintain government benefit eligibility during their lifetimes. Only after the person passes, does Medicaid have a right to ask for reimbursement for any past services rendered. This allows the person to receive essential government benefits support and have supplemental assets to use where benefits fall short. If there is nothing left in the SNT when the beneficiary passes, there is no payback.
Is considered the “gold-standard” of special needs trusts. This type of SNT is set up proactively, typically by loving parents. By being proactive, it allows parents to consider and write detailed instructions regarding the care of their child living with a disability.
A Third-party SNT allows gifts or inheritance of any type (cash, property, collectibles, etc.) to be held without being considered a countable resource by Social Security.
Because “countable resources” are below $2000, this allows the recipient to receive government benefits support and have supplemental resources set aside for their needs.
With a Third-party special needs trust, there is no requirement to “payback” Medicaid for past services rendered. This allows families to build a family legacy, rather than exhausting funds to replenish Medicaid.
Any assets remaining in a third-party special needs trust can be inherited by another designated person(s): sibling, spouse, child, parents, charity, etc.
Yes! This is a common occurrence. For example, a well-meaning grandparent leaves an inheritance directly to their grandchild living with a disability. Since the gift came directly to the person, they are now the owner of the property and would want to protect it from impacting their benefit eligibility. A first-party special needs trust would accomplish that goal. At the same time, mom and dad realize this may not have been the best option. They might prefer to pass their assets to their other children and not have them exhausted paying back Medicaid. The parents can create a third-party special needs trust, ensuring that their assets will be used for their child living with a disability and also be able to leave remaining assets for other children.
Both types of special needs trusts allow the allocation of assets for supplemental expenses that government benefits do not completely provide. Both trusts can pay for therapies, hobbies, vacations, educational expenses, and transportation, among others; the First Party SNT has some notable differences. Some of these factors include;
A First Party SNT is desirable if a person with special needs expects to receive or already owns assets which would disqualify them from qualifying for essential government benefits. Some common examples include;
Divorce involves sharing of assets acquired during the marriage. If there's a partner with special needs, their share may be used to fund the trust.
This can be structured in many different ways from lump-sum awards to monthly payments. Ideally, the award will be directed to the person's special needs trust to ensure continued/future eligibility for government benefits.
The SSI benefit begins at the age of 18 years. Children under 18 years may be eligible based on their parents income and assets. For typical aged people, the minimum age is 65 years. After assets are passed to a person living with special needs, they can be used to fund their trust instead of losing benefits or needing to “spend-down” the money below $2000.
Now that we're acquainted with the two most common special needs trusts, we can touch on how you can plan it out. To ensure the financial security, quality of life, and peace-of-mind, proper planning must be thoughtful and comprehensive. Let's look a little closer as to why planning is essential.
This is the first generation of persons with special needs who will typically survive their parents. Therefore, planning is no longer an option, it is a very significant part of a loved one's future.
In the past, most people living with special needs did not enjoy a full life expectancy. This is no longer the case. 100 years ago, a child born with Down Syndrome had a life expectancy of 9.5 years. By 1950 it had increased to 30. Today it is over 60 with some reaching their 80's. People with special needs are now typically surviving their parents and other family members. The result is that planning is no longer an option. It is a necessity because, in all likelihood, your loved one will survive you.
Perhaps you have a plan in place. Do you know what kind of special needs trust you have? Do you know the source of funding for their extra needs apart from what SSI and Medicaid cover? Do you know how much will be needed? Do you have a written plan addressing education, housing, and leisure? The government will play a significant role in providing people with special needs the necessities of food, shelter, and basic medical care, but they do not cover everything. If you want your loved one to have a quality of life beyond what government benefits can provide, it is up to you to prepare a plan addressing all their needs.
There are many different aspects of life to consider when planning. There are topics such as housing, education, healthcare, diet, religion, employment, friendships, and so on. Some of the needs the SNT or Lifestyle plan should address include;
The special needs planning process is an essential step in ensuring that your child or family member enjoys a smooth transition, security, and quality of life. Having a time-tested process allows you to put everything in its place, keeps you organized, and gives you peace-of-mind, knowing that all areas that will touch your loved one's life, have been planned for. With that in mind, take your time, research, and seek advice to get the best results. Make sure whomever you get information from, specializes in special needs planning. With that said, below is a guideline to consider for creating your Special Needs Plan;
This will allow you to proactively address questions regarding residential needs, education, medical records, lifestyle (abilities, behavior, and skills), employment, social activities, dietary needs, and more.
It should be informational and contains lifestyle instructions. This is not a legal document, though it is as important as a SNT itself. This Letter of Intent contains the information of who your loved one is. It lets the reader know what makes a good day versus a bad day.
Government benefits, life insurance, gifts, inheritance, parental support, etc.
Consider the type of special needs trust that is appropriate for your specific situation. There is no cookie-cutter answer.
Amongst other items, they will indicate to whom your assets should be transferred and have specific language ensuring that government benefits will still be available. Consider the type of special needs trust that is appropriate for your specific situation. There is no cookie-cutter answer.
We know it can be a challenge to do all that work on your own, especially if you don't have reliable information and advice. That is why Serenitas Special Needs Planning was founded; to provide comprehensive planning services exclusively to the special needs community. Our unique process addresses all aspects of life that will affect your loved one: Legal planning, Government benefit coordination, Financial planning, and Lifestyle planning. Well-known for helping families of children living with special needs navigate the special needs landscape, Serenitas Special Needs Planning is the ideal institution to seek help from.
When families embark on planning for their loved ones, we considering a plan that accommodates the entire family. Philosophically, our goal is to protect the person living with special needs, while leaving parents and caregivers the greatest degree of flexibility and options, now and in the future. If you think of a wheel with your child at the center, there are 4 spokes supporting it. The 4 “spokes” represent Legal planning, Government benefit coordination, Financial/budget planning, and Lifestyle planning. Missing any one of these spokes will leave an unstable plan and an uncertain future. Let's take a closer look.
Legal planning includes all documents, records, and trusts that facilitate a smooth transition, security, and quality of life.
Government benefits play a significant role in the lives of persons living with special needs. There are a number of different benefit programs that have different rules for eligibility. Many families are thwarted when they apply for SSI benefits as the process can be cumbersome and confusing. This does not have to be the case! Understanding the rules for eligibility, and being prepared before applying, will dramatically aid families in a successful application. Serenitas Special Needs Planning works with families to understand issues affecting government benefit eligibility.
Some of the items to be aware of with Social Security Healthcare and Cash benefits include:
A crucial part of planning for your child living with special needs is to create a financial or budget plan. Budget and financial planning determine the supplemental needs of your loved one. Serenitas Special Needs Planning can help you develop a realistic budget.
First, a monthly budget is established based on today's needs while projecting into the future. Items to be considered include room and board, transportation, education, care assistance, personal needs, special equipment, and social activities. Then, by using a reasonable rate of return on principal, the family calculates how much money is needed to fund the trust.
In addition, the life expectancy of the person must be considered and the overall need projected into the future using an inflation factor. At 3% inflation, $100,000 today is reduced to $74,000 of spending power in only 10 years! When the budget is completed, the family then identifies the resources to be used to fund the Special Needs Trust. This may include government benefits, savings, stocks, mutual funds, IRA's, 401k's, real estate, home, life insurance, family assistance, and inheritance. The trustee is responsible for managing the assets and may retain professional advisors.
*Do not count on any funds from family or friends until they are actually in the trust. For example, grandparents may spend the last months or years of their lives in a nursing home, which could deplete their estate.
This part of your plan will require a review and update at least annually.
Lifestyle planning is where the family records what they want for the future of their loved one. We feel this is the most important part of your plan. It is a document that is as invaluable today as it will be in the future. This information is recorded in a document called the Letter of Intent. Although not a legal document, it is as important as a Will and Special Needs Trust. Lifestyle issues require decisions regarding where the person will live, continued educational programs, employment, social activities, religious affiliation, medical care, behavior management, advocacy, guardianship/conservatorship, trustees, and final arrangements. In addition, detailed instructions are provided for assisting the person with the typical activities of daily living such as bathing, dressing, feeding, and toileting.
Perhaps the person has a special way of communicating that only the immediate family knows and understands. It is important that this information be included. Rather than write a lengthy description on how to do these things, it is recommended that families prepare a video for the person performing these activities and/or receiving assistance. In addition, show the person in different social settings such as home, school, daycare, etc. Prior to providing details regarding the assistance your loved one requires, it is also important to inform others of what the person can do for themselves. Their self-esteem, ego, personal satisfaction in accomplishing a task is important. Great care and attention should be given to this matter as it can play an important role in the person's peace-of-mind.
The result of completing a comprehensive plan provides: lifetime supervision and care, maintaining government benefits, supplementary funds to help ensure a comfortable lifestyle, management of funds, dignified final arrangements, and avoid family conflict.
With over 40 years of combined experience, Serenitas Special Needs Planning will help you understand and plan for all the aspects that will affect your loved one living with special needs.
A Special Needs Trust is ideal for families who want to safely pass assets to their child living with special needs while maintaining eligibility for critical government benefits. It allows caring families to express their wishes as to the type of care and quality of life they expect their child to have when they are not there to provide it in person. Comprehensive special needs planning allows your loved ones to live life to its fullest.
Begin your planning journey today! For more information, contact professionals who care at Serenitas Special Needs Planning.