Special Needs Estate Planning: Preserving Your Disabled Child’s Public Benefits and Maintaining Their Quality of Life
• It’s important that an individual with special needs maintains some level of covered benefits, such as social security or Medicaid, amongst other resources. However, without proper planning it is easy for a family or individual to misstep and lose their benefits.
• A special-needs individual can generally have up to $2,000 in their name- anything above that and they may lose their eligibility for government benefits. While this is not a lot of money, it’s very possible to maintain and stay under that limit with proper planning.
• The two primary planning options to assist a disabled individual in staying under the $2,000 resource limit are: 1) An ABLE account; and 2) a Special Needs Trust (either first-party or a third-party).
• The two major differences between a first-party special needs trust and a third-party special needs trust is that a first-party trust is always irrevocable, whereas a third-party trust can be either irrevocable or revocable. Additionally, a first-party special needs trust has a “Medicaid payback”, meaning if the individual with the disability passes away, any funds left in the trust would go to Medicaid, whereas this is not the case with a third-party special needs trust.
• Common trust strategies:
-Create a testamentary trust: a trust that does not become active until the grantors have passed away.
-Create and fund at third-party trust now, however this will be subject to accounting and taxes.
-Create a third-party trust as a “dry” trust, meaning it’s active but there’s nothing in it. This allows family members to include this third-party special needs trust in their own estate plans.
-Create an ABLE account: this is an account that can accumulate $15,000/annually, or $100,000 in total, of funds that will not count against the resource limit or eligibility of the individual with a disability. This account also allows for the special-needs individual to have access to a set amount of funds via a loadable debit card. Unlike first- and third-party special needs trusts, an ABLE account cannot account for assets; it can only account for money. Therefore, it’s a great option to be considered alongside a trust, rather than in place of a trust.
• Create a list of all personal preferences, details, medical notes and contact information, and activity schedules of the special-needs individual for any person who may assume a guardianship role in their life to help ensure sustained quality of life.