The Connecticut Elder Law Blog

The $100,000 Question in Special Needs Trust Planning

There are obviously many important considerations to ponder when designing an estate plan for a beneficiary who has special needs. But the most important issue in the planning process is picking the person or persons who will be in charge of managing the special needs trust. This person is known as the "trustee" and he/she has the biggest impact on whether or not the purposes of the trust are actually carried out after you pass away. Pick the wrong person and the whole plan can come crashing down, to the severe detriment of your disabled loved one.

Ideally, you want to have a trustee that is relatively stable and financially savvy since that person may be in charge of investing a great deal of money for your loved one. The trustee should also have a good relationship with the disabled beneficiary. If the trustee interacts with the beneficiary on a regular basis then he/she will have a better understanding of the beneficiary's disability and therefore better able to make appropriate distributions from the trust funds.

A sibling of the beneficiary is often appointed as the trustee in most cases (in the event that the parents are unable to act). This arrangement is usually entirely appropriate. But you should keep in mind that most special needs trusts will indicate that any remaining trust funds will go to the beneficiary's siblings upon the death of the beneficiary. In other words, less scrupulous siblings who have been made the trustee of their sibling's trust may be motivated to withold neccesary distributions to the beneficiary since doing so would water down their future inheritance. This issue is not unprecedented, so it needs to be considered before a sibling is appointed as the trustee.

Finally, you need to have a trustee that is prudent enough to strictly follow the instructions and limitations outlined in the trust language. If the State catches wind of improper distributions from the trust (such as distributions that pays for things that the State is already covering) then there is a risk that the benefits will be cut off.  Although this is a self-serving statement, you need a trustee who is wise enough to seek specialized legal guidance if the propriety of a particular distribution is questionable.

In short, you need to give long and serious thought as to who you will name as trustee of your special needs trust. The decision can make or break all of the careful special needs planning you have done.

Estate Planning for the Disabled: Special Needs Trusts (Part II)

So...what makes "Special Needs Trusts" so special?  It is, in a way, an opportunity for your disabled child (or non-child beneficiary) to have her cake and eat it too.  This is because the funds held in the name of the trust are there for the benefit of the child, yet it is not a "countable asset" when determining her eligibility for government benefits.  This allows a situation where the government benefits cover her basic needs while the special needs trust can pay for the "luxuries" (things that the government will not pay for), thereby maximizing her quality of life.  This is, of course, the ultimate goal of my special needs clients; making sure that their disabled child has the very best life possible if they are suddenly not there to help her out.

The restrictions are, first, that the child would have absolutely no control over the trust funds; she cannot write checks or make any type of withdrawal, make investment decisions or compel the trustee to make distributions.  The trustee has absolute and full discretion over what happens with the trust funds. 

Second, the trustee is given strict instructions in the trust language that he/she is not to make any distributions that would jeopardize government benefit eligibility.  That is to say that the trustee cannot duplicate any spending that the government is already doing on the disabled child's behalf.  So if the child is receiving Medicaid benefits then the trustee cannot pay for the basic medical costs that Medicaid covers.  If the trustee does so, then the State could say that government benefits are no longer needed since the trust is covering basic medical costs.

These trusts are, obviously, complicated estate planning documents.  My objective in this post and the previous post is to give you a very general overview of what special needs trusts are all about.  But stay tuned for future posts where I will get into the nitty-gritty details of these trusts, such as how to select a trustee, different types of special needs trusts and other important issues.

Estate Planning for the Disabled: Special Needs Trusts (Part I)

If you have minor or adult children (or non-child beneficiaries) who are either receiving government benefits currently, or may receive them in the future due to a mental or physical disability, then you need to know about special needs trusts.  These trusts are certainly important enough to spend the next two posts discussing them.

These types of trusts are much more well-known than they were just a few years ago, but I find that too of my clients are not familiar with them.  The most common disabilities among my clients' beneficiaries are conditions like autism, down syndrome, Alzheimer's and mental retardation, but special needs trust planning is usually vital regardless of what the specific disability may be.  If there is a chance that your beneficiary may not be able to support himself/herself if you are suddenly not there to help out, then you need to at least discuss special needs trusts with an estate planning attorney.

When we talk about government benefits for the disabled then we're usually talking about Medicaid (Title 19), which covers basic medical care, and SSI (Supplemental Security Income), which covers basic food, clothing and shelter needs.  These types of benefit programs have asset limitations: $1,600 in Connecticut for Medicaid and $2,000 for SSI.  In other words, anyone with assets that exceed these limits are ineligbile and must spend their assets down on their care until they are under the asset limits, at which point they can apply.

So...this means that if you leave an outright inheritance to a disabled beneficiary then you are likely doing them a disservice.  The inheritance will either render them ineligible for the government benefits they are already receiving or it will make it harder for them to qualify in the future because there are suddenly more assets that need to be spent down.

In tomorrow's post I'll explain how these important trusts operate and why they are usually the best option for disabled beneficiaries.