Special needs Trusts – Estate Planning

Anyone Could Have Special Needs

Provided By: Alan G. Orlowsky

A special needs trust is specially designed to hold the inheritance of a beneficiary, and to be used for needs above and beyond those covered by government programs. These trusts contain instructions that allow the Trustee to meet the needs of the beneficiary, but prohibit the Trustee from providing for those needs if already covered by Medicaid or other programs. It also prohibits the Trustee from using the assets to reimburse any government program after the beneficiary’s death. These types of trusts are commonly used by clients with special needs children or grandchildren. But did you ever consider that anyone could become a special needs person during their lifetime?

Consider the case of the Bensons. Bill and Mary Benson have three adult children (John, Susan, and Nancy) each of whom has children of their own. With the help of their estate planning attorney, Bill and Mary prepared a living trust that passed their estate in equal shares outright to the children. Bill and Mary’s estate was valued at approximately $3,000,000 so each of the children inherited around $1,000,000. The trust also provided that if a child passed away, their share would go on to that child’s children – Bill and Mary’s grandchildren.

A few years after Bill and Mary passed away, their daughter Nancy was involved in a catastrophic automobile accident. She was injured so badly that she was unable to care for herself. However, she was still expected to live a normal life expectancy of another 30 years or so.

The person named as guardian immediately sought help for Susan’s medical expenses from Medicaid or other means-based government programs. They were shocked to learn that the entire inheritance set aside for Nancy ($1,000,000) must be spent on medical expenses before Medicaid would assist her. As an alternative, the guardian learned that the assets could be placed in a special kind of trust to be used for Nancy’s benefit. But at Nancy’s death, the trust must reimburse Medicaid for what was spent for care during her life, so Nancy’s children would get nothing.

This result could have been avoided by creating a special needs trust. The Bensons’ trust could have contained special needs instructions in the event of a beneficiary’s disability. As a result, the inheritance could have been used at the discretion of the Trustee, and anything left over at the time of Nancy’s death could be passed on to her children.

A special needs trust does not have to be limited to food, clothing or shelter. It can provide for anything that Medicaid or other government programs are not providing. For example, if the beneficiary loves music, the trust could purchase CDs or MP3s along with the electronics needed to play them. The trust could pay for movie rentals or audio books. The trust could pay for hair styling and beauty care, extra comfortable sheets, or decorations that cheer up the room.

A well-designed special needs trust can make the disabled person’s life much more enjoyable, while protecting whatever is left of their inheritance to pass to the next generation.

If you or a loved one has questions regarding a Special Needs Trust or any estate planning issue please contact Orlowsky & Wilson for a free consultation.

Updated as of July 2019
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