Individuals with special needs often require extra assistance throughout their lives and that’s true of their parents as well. Caregiving may not end with adulthood. Parents may continue to support their child even as they deal with their own struggles with aging (financial, health and emotional). Furthermore, parents often worry about what will become of their child when they pass away. Some of these concerns can be addressed by special needs planning.
Many special needs adults are on public assistance, especially Medicaid, which pays for their health-related expenses. Even if their parents are alive, they may be able to qualify for government benefits. If they can afford it, parents can supplement these benefits by simply buying whatever else would help their child. However, once the parents die, they cannot do this anymore. Further, they cannot give money directly to their child either as a gift while they are alive or leave funds as an inheritance because such a bequest could disqualify them from continuing their Medicaid assistance. That’s where a special needs trust (also known as a supplemental needs trust) can help.
A special needs trust is a planning tool. It allows someone to set up a trust for the benefit of another person receiving government benefits. The money from the trust can then be used to pay for things that would help the beneficiary but are not covered by public assistance. In this way, the arrangement provides for the “supplemental needs” of the special needs adult. A trustee is responsible for the trust and decides when and how to use the funds. Since the trustee controls the money, not the beneficiary, it is not considered to be an asset of the beneficiary, so it does not disqualify the beneficiary from receiving public assistance. The trust can be used for any type of expense, such as electronics, clothing, entertainment, unreimbursed personal or health care services, education, or other items.
There are 2 types of special needs trusts. A self-settled trust is created by the special needs adult for his or her own benefit. Importantly, the special needs adult must have legal capacity to create a self-settled trust. A third-party trust is typically created by a parent or family member for the benefit of the special needs adult. A self-settled trust has different Medicaid consequences than a third-party trust and it is important to understand the distinctions involved.
Third-party trusts can be set up and funded while the donors are still alive or may be included in a will.
Where the parents have divorced or are in the process of divorcing, it is important to discuss setting up a trust as part of the divorce settlement. Under a 2021 New York law, parents are obligated to pay child support for their developmentally disabled adults until the age of 26. Creating a special needs trust would ensure that those support payments will not disqualify the child from public assistance.
If you have a special needs adult child, contact me for assistance with your estate planning and special needs planning.