ISSUE #20
Special Needs Trusts

If you have a disabled child or grandchild, you may want to make financial arrangements for that child’s lifetime care. However, you must do this carefully. Outright gifts or inheritances may prevent a disabled person from receiving public welfare benefits. With proper planning, you can provide financial support that will supplement these benefits, not replace them.

1. Public Welfare Benefits -- Our nation provides modest financial support for disabled people who are unable to fully support themselves. These disabled adults are generally entitled to receive Supplemental Security Income (SSI) payments, which provide a modest monthly allowance to pay for basic housing and food. Disabled people who receive SSI payments also qualify for Medicaid, which pays for their medical and hospital costs. These are important benefits that a disabled person is entitled to receive throughout his or her life, so it is important to preserve access to them.

2. Eligibility -- SSI and Medicaid benefits are available to disabled people only if they meet strict income and asset guidelines. A disabled person may lose his or her eligibility for SSI and Medicaid by owning assets worth more than $2,000. An inheritance or a gift from a family member can easily push a disabled person’s net worth over this limit, causing him or her to lose SSI and Medicaid benefits. This serious consequence can be avoided by directing the family gift or inheritance to a special needs trust.

3. Special Needs Trust -- A special needs trust is a specific legal device that accumulates assets for the benefit of a disabled person. The trust is designed to provide certain kinds of support to the disabled person without jeopardizing his or her eligibility for SSI and Medicaid. A special needs trust is drafted to merely supplement, but not replace, SSI and Medicaid benefits. For example, your disabled child’s special needs trust could pay for their travel, home appliances, recreation, personal care and other needs.

4. Setting Up the Trust -- Make sure you work with a lawyer who is skilled in drafting special needs trusts. These trusts are governed by both state and federal laws, which do change from time to time. Once the new trust is established, you need to make arrangements for funding it. This often means naming the trust as a beneficiary in your will, living trust or life insurance policy. Make sure you name the trust and not the disabled person as the beneficiary. As long as the trust owns the assets, they will not count against the disabled person’s eligibility for public benefits.

5. The Trustee -- You will need to name a trustee who is responsible for managing the trust. The trustee has full discretion over payments for the beneficiary, so select someone who is trustworthy. The best trustee is often a close family member, usually a brother or sister, who can serve as trustee for many years. If a suitable family member cannot serve, you may also name a corporate trustee, like a bank trust department. Make sure your trust contains provisions for changing the trustee whenever necessary.

6. Pooled Trusts -- If you are leaving your disabled son or daughter an amount of money that is too small to justify a separate trust, you may be able to participate in a pooled trust. Pooled trusts, which are generally managed by non-profit organizations, hold the assets for many disabled beneficiaries in separate accounts. This arrangement provides professional management services for relatively small amounts of money. Pooled trusts generally have lower fees and costs than individual trusts.

7. Informal Alternatives -- You may plan on leaving the money for your disabled child to one of the other brothers or sisters, naturally expecting that these funds will be used only for the care of your disabled child. These moral obligations, which are not legally enforceable, sometimes result in unintended problems. The child holding the money may die prematurely and be unable to carry out your wishes. Or the money may be lost to a legal judgment or a divorce settlement. Informal arrangements are undependable substitutes for a special needs trust.

8. Getting Expert Help -- To have the peace of mind that comes from knowing your special needs trust is properly designed, make sure you work with a qualified attorney. Locate an attorney who is well recommended, specializes in disability law and has considerable experience in drafting these trusts.

This publication has been prepared as an educational resource to help the reader identify areas of potential concern. The publisher is not engaged in rendering legal, accounting or other professional services. The information contained in this publication should not be acted upon without first obtaining the advice of a professional adviser. 2004 © Florida Philanthropic Advisors, LLC. Material may not be used without permission.

You may wish to access NEW information this month at: www.ashland.edu/estate and “click” on “Planned Giving” in the left hand column.

Our planned giving director, Paul Ditlevson, can be of tremendous service in helping you integrate your giving goals with your overall estate plan. He can also help you prepare to visit your attorney. You can reach Mr. Ditlevson by calling 419-289-5090 or by email to pditlevs@ashland.edu or regular mail at 401 College Avenue, Ashland, OH 44805.