What You Should Know About Special Needs Planning

Possibly there is or will be someone in your life, whether a child, sibling, grandparent, or another person, who will need help with financial management. If you have a loved one with disabilities, you may have concerns about planning for the future needs of the disabled individual. Because individuals with special needs may have a normal life expectancy, it is important to plan for the future. How can you ensure that your family member will be well cared for after you are gone? How can I provide for his or her current and future needs? Estate planning for a person with special needs can be challenging.

Perhaps you know that your special needs loved one will never be fully self-supporting. She may need to access government benefits for medical costs and other types of support. Disabled individuals may not be able to receive Social Security Disability Income or Medicare due to circumstances, such as lack of a work record. They may wish to apply for Supplemental Security Income (SSI), which is intended to provide money for shelter and food, or Medicaid, which covers health care, prescription drug expenses, and other types of care. To qualify for these programs, or other programs based on need, the individual must prove that they have a disability that is expected to last at least twelve months, that the person is unable to work enough to be self-supporting, and have very few assets. If your loved one receives an inheritance or has even modest assets available to him or her, that person could be ineligible to receive SSI and Medicaid.

How do you plan for someone who will be unable to live independently? This is where special needs planning makes all the difference because it provides a way of holding assets for a disabled person, while preventing him or her from being disqualified for government assistance.

Special needs trusts and supplemental trusts

People are often confused about the terms “special needs trusts” and “supplemental trusts”.

A special needs trust is designed to hold assets for the benefit of a disabled beneficiaries to be able to fund certain “extras” not covered by government benefits.  These trusts are authorized by federal and state law as long as the trusts are drafted, funded, and propertly administered.  If done properly, the individual can receive some “extras” and will still be eligible for government programs that might otherwise demand the depletion of the asset. Special needs trusts that are created using someone else’s money (other than the disabled beneficiary), such as a parent or grandparent, are sometimes referred to as third-party special needs trusts but under Minnesota law they are called supplemental needs trusts.

Supplemental needs trusts are intended to provide for “extras” for a disabled person when governmental benefits programs are insufficient to provide for those items. Such trusts are funded by someone other than the beneficiary, his or her spouse, or someone obligated to pay an amount to the beneficiary under certain circumstances, such as a judgment.

In some states, the special needs trust and supplemental needs trust are quite similar, but in Minnesota, they are different. The main difference is:

  • A special needs trust is established by the disabled individual or their spouse. In the event, all of the funds in the trust are not used, upon the death of the disabled person the money goes to the state.
  • A supplemental needs trust is established by a third party for the benefit of the disabled. In the event all of the funds in the trust are not used, upon the death of the disabled person, the money is not required to go to the state.

Planning and implementation

When planning for your special needs loved one, it is important to choose the best person or organization to manage the inheritance. Choose a trusted person, but also someone who has the necessary skills to appropriately manage and distribute the funds in the trust. Finally, the trust must be adequately funded to achieve your desired goals.

Each person and each family has different needs. To speak with an experienced Minnesota estate planning attorney about special needs planning, please contact us.