Having a family member with special needs can bring us unique joys and challenges. We can shower them with our love and commitment, but we may also experience endless worry.
What will happen to them once you are gone?
An appropriate estate plan is a must for parents with children or other family members with special needs.
You would want them to have sufficient financial resources to address their needs.
But one concern that most parents might have is the thought that “sufficient financial resources” for the benefit of your loved one might inadvertently disqualify them or cut them off from having access to crucial government programs.
A Special Needs Trust (SNT), thoughtfully created, can address these concerns and provide a feasible solution for worried parents.
What is a Special Needs Trust?
A Special Needs Trust or SNT is a type of trust that is established for the benefit of a person with a disability or special needs. Property or assets are managed for the benefit of the beneficiary, as any usual trust. But for an SNT, the assets are not directly transferred to the beneficiary upon the death of the grantor. Instead, the assets are managed by a trustee and utilized to support and provide for the beneficiary’s specific needs.
One of the unique benefits of an SNT is that it can help to preserve the beneficiary’s eligibility for government programs designed to provide assistance to those who need them, such as the Supplemental Security Income (SSI) and Medi-Cal. These two programs are intended to provide financial assistance and healthcare coverage for those with limited income, so eligibility to avail of their benefits will also be based on the person’s financial capacity.
A SNT holds the assets and property in the name of the trust, not the beneficiary. Thus it can ensure that the beneficiary is not disqualified or excluded from these government programs simply because they inherited the assets directly. Done correctly, the person with disability or special needs can still avail of these crucial public benefits while still having the financial assistance from the trust for their regular needs and to help make their lives more comfortable.
SSI and Medi-Cal
The SSI or the Supplemental Security Income in California is a federal program intended to provide financial benefits for qualified people, including those with disabilities. Eligibility is also based on financial capacity. As of this writing, the total value of the properties, excluding certain properties such as the person’s home and vehicle, must be less than $2,000 to qualify.
Those who are qualified to get SSI are automatically qualified for Medi-Cal.
Medi-Cal, on the other hand, is California’s Medicaid health program that covers the cost of medical services for qualified individuals. Similar to SSI, eligibility is based on financial capacity. Covered services may include doctor visits, hospital care, prescription medication, therapy, long-term care, and other essential medical services.
Why is a Special Needs Trust Important?
The primary thing to know is that an SNT is not designed to replace these government benefits. SSI and Medi-Cal provide needs-based benefits that are difficult if not impossible to replicate privately. Medical and health care costs can be very high for anybody, but most especially for those with special needs or disabilities that need ongoing care.
An SNT is not intended to be a substitute for these government aid programs. Even a high-value trust might soon be depleted if the monthly healthcare costs are high.
Instead, an SNT is designed to supplement the benefits of these government programs, while at the same time ensuring that any unexpected inheritance for the benefit of the child will not unintentionally disqualify them.
If something were to happen to the parents of a child with special needs, for example, but the parents had set up a living trust for the benefit of their child. Unless the specific conditions addressing their child’s needs were factored into the trust, most trusts become irrevocable upon the death of the grantor. After a brief period of administration, the trust assets are then transferred to the beneficiary’s name.
That means that the child’s assets have increased, which could make them ineligible for Medi-Cal. But even high-value assets will only last so much if the costs of one’s needs are high. So the child might find himself or herself, one day, without any assets for their upkeep, and unable to access the benefits of these government aid programs.
This is the unfortunate outcome that an SNT is designed to avoid.
What does a SNT pay for?
It all depends on the terms of the trust instrument and the needs of the beneficiary. But an SNT, managed by a trustee, may help cover the costs of education, therapy, personal care, transportation, clothing, housing, computers and other technological devices, medical equipment, or any costs for recreational activities.
The cost of how much can be covered by the trust must be carefully assessed, however, especially if it eventually affects eligibility. The trustee selected to administer the trust must, therefore, be trustworthy, reliable, and familiar with the industry and applicable regulations.
Can You Leave an Inheritance to Your Child Instead?
Certainly, if preferred, parents can opt to just leave an inheritance directly to their child instead of setting up an SNT.
However, while it may seem like the easiest and simplest option – at least in setting up – it may affect the child’s long-term care.
The parents may avoid the initial complexity of having to set up an SNT that is suitable for their unique circumstances. But the impact will be felt by the child long-term.
If the parents opt to directly pass their wealth on to their child, the increase in the child’s assets and properties may render them ineligible for SSI, Medi-Cal and other needs-based government programs.
Then also, several questions would need to be asked – will your child be managing the properties on their own? Will you be appointing a financial guardian for them? Will the assets you leave them be sufficient for long-term care, given rising healthcare and medical costs?
Maybe your family wealth is such that you are not worried about these kinds of questions. But for most people, being able to provide for a child’s long-term care and needs is a source of constant worry and concern.
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If you have a special needs child or dependent with a disability, you might find it helpful to have a consultation with a family trust lawyer to find out how your estate plan can be customized specifically for your needs. Reach out to us today and schedule a consultation.