Estate Planning and Special Needs Trusts

By Jennifer L. Simons, Esq.

While estate planning is essential for everyone, it is even more critical for families with children who have a disability. A child diagnosed with a disability may be eligible for public benefits, such as Supplemental Security Income (SSI), Medical Assistance (MA), or Waiver services, depending on the nature of the disability. These public benefits, are “resource-based,” meaning that eligibility for these benefits is determined partly on finances. In most cases, a person applying for these public benefits must have limited income and resources valued at no greater than $2,000.00. Therefore, a substantial inheritance could render a child financially ineligible for certain public benefits. The good news is that it is possible to avoid such ineligibility by the use of Third-Party Funded Special Needs Trust, which is created on behalf of the child to hold the child’s inheritance on his or her behalf, allowing the child to remain eligible for much needed public benefits.

When creating a Will, many parents (with all good intentions) name their children as beneficiaries of their estate, without realizing that naming a child with a disability as a beneficiary can have a devastating effect if the child is receiving public benefits. The money that the child inherits will be counted as the child’s resource. If the value of the inheritance results in the child having assets in excess of the $2,000.00 threshold, such child will lose benefits, if already receiving them or be ineligibile for benefits, if applying for them. By creating a Special Needs Trust, parents can direct in their Wills that any assets passing to the disabled child are instead directed to a Third-Party Funded Special Needs Trust for the child’s benefit. By doing this, the assets are owned by the trust instead of the child, thereby protecting the child’s eligibility for resource-based benefits. The Special Needs Trust can also be named as the beneficiary for assets that pass by a beneficiary designation, such as an IRA, 401(k), or life insurance policy instead of under a Will.

A Special Needs Trust can be created as part of Will (testamentary special needs trust) or under a separate trust document created during a parent’s life (inter vivos trust).  An inter vivos trust can be useful if other family members wish to gift into the trust during their lifetime. The funds in a properly drafted Special Needs Trust are not counted as a resource and do not count in determining eligibility for resource-based public benefits. The funds in the trust may be used for the benefit of the individual with special needs for items such as clothing, furniture, computer, assistive technology, even a vehicle if appropriate. The trust can also be used to hold inheritances or gifts from other family members who may wish to name the child as a beneficiary under their Will or gift money to the child during their lifetime.

It is of utmost importance for parents of a child with a disability to have a proper Will with a Special Needs Trust in place. If the parent dies without a Will, the estate will pass according to the intestacy laws of the Commonwealth of Pennsylvania, which can result in a child receiving an inheritance outright and cause the termination of public benefits. It is critical that a Special Needs Trust is drafted properly by counsel who are experienced in this area. If you would like more information on estate planning and special needs trusts, please contact our office to schedule an appointment to speak with one of our estate planning attorneys.