Peace of Mind: Estate Planning for Loved Ones with Special Needs
Money can’t solve every problem, but financial security can make it much easier for a loved one with physical, intellectual, or developmental disabilities to have a superior quality of life. Special Needs Trusts are an excellent planning tool for creating lifelong financial security and stability for loved ones today and after we are no longer around to care for them.
What is a Special Needs Trust?
A Special Needs Trust (SNT) sets aside financial resources for a disabled beneficiary in a way that preserves their current or future eligibility for means-tested public benefits such as Medicaid and Supplemental Security Income and is one of the most effective tools for protecting disability benefits. These trusts are specifically designed to prevent individuals with disabilities from exceeding asset thresholds while still allowing them to benefit from additional resources to pay for supplemental needs such as medical expenses, special equipment, home care, education, or recreational activities. Essentially, a Special Needs Trust can allow someone with a disability to enjoy a comfortable lifestyle.
There are several types of SNTs, including first-party, third-party, and pooled trusts, each serving distinct needs and circumstances. For example, if you are preparing to leave an inheritance to a special needs child who will be on government benefits, you would want to create a third-party Special Needs Trust to receive inheritance.
Types of Special Needs Trusts
There are three types of Special Needs Trusts. All are designed to keep the beneficiary under the asset threshold to qualify for Medicaid. This is possible because the trust, not the disabled individual, legally owns the assets and the trustee controls them. Further, the beneficiary never receives money from the trust, but only has expenses paid from the trust on their behalf by the trustee.
Each type of Special Needs Trust has different rules about who can establish it, when it can be established, and how it can be funded. As such, almost any family should be able to create a Special Needs Trust that suits their loved one’s circumstances.
Third-party trust
A third-party Special Needs Trust must be established by someone other than the beneficiary. Typical grantors include parents, grandparents, legal guardians, or a court.
When to use it: To leave an inheritance through a will, revocable living trust, or payable-on-death designation before the beneficiary’s 65th birthday.
First-party trust
Also called a qualified self-funded or self-settled Special Needs Trust, a first-party trust is funded with assets that are in the disabled person’s name.
When to use it: When the disabled individual receives a settlement (for example, from an accident that caused the disability) or a poorly planned inheritance.
Qualified pooled trust
Also called a (d)(4)(C) trust, it is managed by a nonprofit organization and pools funds with those of other disabled individuals for investment purposes. It can be funded by a third party or by the beneficiary.
When to use it: When the beneficiary has already turned 65; when the assets available to fund the trust aren’t sufficient to justify the cost of setting up a third-party or first-party trust; when the beneficiary doesn’t have any heirs; when leaving an inherited IRA to a disabled individual.
Special needs planning isn’t just about protecting assets either—it’s about providing peace of mind for you and your loved one. It ensures they receive the care, support, and opportunities they deserve without risking the benefits that are essential to their well-being.
Special needs planning can be emotionally and financially overwhelming. The right legal advisor can provide clarity and peace of mind by breaking down complex decisions into more manageable actions, in turn reducing stress for you and your family. For assistance in determining whether a Special Needs Trust is the right decision in your circumstance, please contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100.