Estate Planning for Persons with Disabilities
How to Use a Special Needs Trust to Preserve Eligibility for Government Benefits
How to Protect Beneficiaries with Disabilities
In some cases, one of the objectives of estate planning is to provide extra resources for a disabled person without affecting their eligibility for government benefits. In such a case, a
Special Needs Trust is the right tool to ensure a better quality of life for the beneficiary while still allowing them to receive state or federal assistance.
A Special Needs Trust Supplements the Benefits Available to a Disabled Beneficiary
A Special Needs Trust is used to appoint a trusted person ("trustee") to manage financial resources for a disabled person without impacting their eligibility for government assistance.
Elements of Special Needs Trusts
The most common form of Special Needs Trust consists of the following elements:
- A pure "discretionary" trust;
- A source of property to be added to the trust by any third party;
- A single disabled person as the sole lifetime trust beneficiary;
- A trustee to manage the trust property for the beneficiary; and,
- One or more alternate beneficiaries to receive the trust property upon the death of the beneficiary.
How a Special Needs Trust Works
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Special Needs Trust (SNT) is designed to provide lifetime financial assistance to a disabled beneficiary while preserving his or her eligibility for government assistance. An SNT works because the beneficiary does not actually own the trust assets, and they have no right to force the trustee to make a distribution of trust property. Rather, the trustee has authority to distribute the trust assets to the beneficiary as the trustee sees fit. As a result, the trust assets are not attributable to the beneficiary for purposes of his or her eligibility for government assistance.
How to Fund a Special Needs Trust
Adding property to a trust is called "funding" the trust. A third-party SNT can be funded with any assets that are not owned by the beneficiary. This is typically done with life insurance owned by a parent or guardian, or a direct distribution of cash from the will or trust of a parent, grandparent, or guardian of the beneficiary. In this way, upon the death of the parent or guardian, the trust will receive the necessary resources to provide supplemental care and support for the beneficiary.
Special Needs Trust (SNT) vs. ABLE Accounts
In 2014, President Obama signed the "ABLE Act" into law. The purpose of the ABLE Act is to allow individuals to save money for the benefit of a disabled person without the expense of creating an SNT. Money held in an ABLE Account is not attributable to the beneficiary for purposes of eligibility for Medicaid and SSI. ABLE Accounts are appropriate in some circumstances, but they have several limitations that must be considered. The primary differences between using an SNT and an ABLE Account are listed in the table below:
| SNT | ABLE Account | |
|---|---|---|
| Annual Contribution Limit | No limit | $15,000 per year |
| Account Maximum | No Limit | $100,000 to maintain eligibility for SSI |
| Onset of Disability | Not applicable | Before Age 26 |
| Payback Upon Death | None | Medicaid benefits must be repaid to the government |
| Account Owner | Trust | Disabled Person |
| Account Control | Trustee | Disabled Person |
| Use of Resources | Any use | Limited to "qualified disability expense" |
| Tax on Account | Growth is taxable | Tax-free growth |
How to Start Estate Planning for a Person with Diabilities