Planning is critically necessary to avoid unintended consequences in which your wishes are not carried out and the person you care about so deeply is left at risk of losing essential public benefits.
“What will happen when I am not around? How can I protect the future of my loved one?”
Supplemental Needs & Special Needs Trusts
In some cases, a well-meaning grandparent remembers a child with special needs in his or her will, not realizing that any inheritance of over $2,000 will disqualify that child from receiving Supplemental Security Income (SSI) or that an inheritance of over $3,000 will disqualify that child from receiving Medical Assistance (MA). The same thing happens with parents who are not aware of the rules which control governmental benefit programs—their child is
disqualified until they have spent down the entire inheritance until it is under the $2,000 or $3,000 limit. Clearly, this was not the intent of the parents or grandparents, but, through ignorance of the law, that is the unfortunate effect.
Some relatives try to get around the rules (and save on attorney’s fees) by disinheriting the child with special needs and leaving his/her share to a sibling or other relative to “hold” for the child with special needs. This approach is fraught with problems. If the money is in the sibling’s name, then the money is exposed to potential attacks from others, such as an ex-spouse in a divorce action. The sibling can claim it was non-marital, but many courts will ignore that distinction based on a showing of “undue hardship” by the ex-spouse. Unfair? Absolutely. But it happens. If the sibling is involved in a car accident and a judgment is filed against him or her, the bank account that was supposed to be used for the child with special needs can be seized without notice. The judgment creditor doesn’t care whether the money was for the sibling or for the child with special needs. To them, it is just money that is owed.
There are ways, however, to provide for your family member or friend with special needs while also protecting their eligibility to public health benefits which fund, in most cases, critically necessary healthcare and services and supports, and sometimes housing. There are two kinds of trusts which involve persons with special needs, “Supplemental Needs Trusts” and “Special Needs Trusts.”
The primary purpose of both trusts is to provide for the reasonable living expenses and other basic needs of a person
with a disability when benefits from publicly funded benefit programs are not sufficient to provide adequately for
those needs. There are just two main differences between Trusts & Bequests these two trusts and once they are established, they operate very similarly. The two differences involve the funding source, on the one hand, and what happens to the money after the person with special needs dies, on the other hand.
“Supplemental Needs Trusts” are established by state law; most but not all states permit this type of trust. Depending on state law, in most cases, a Supplemental Needs Trust is funded by a parent, a sibling, a grandparent or anyone except the person with the disability, their spouse, or a legal settlement for the benefit of the person. When the individual with special needs dies, the remaining trust funds go to a beneficiary (e.g., a sibling or charitable organization, like VOR), as designated by whomever created the trust.
In contrast, a “Special Needs Trust” is funded by money which belongs to, or will belong to, the person with the special needs. For example, if your family member with special needs receives a legal judgment or an unexpected financial gift, these funds can be placed in a special Needs Trust, thereby protecting the individual from losing necessary public benefits. One thing to know about Special Needs Trust is that when the individual dies, any money
remaining in the trust must be repaid to the state to reimburse it for any medical assistance or various other governmental benefits that were provided to the person with the special needs. In other words, the creator of the trust does not have the discretion to leave remaining funds to a sibling or charitable organization, as can be done
with Supplemental Needs Trusts.
A charitable bequest is a great way to help protect the future of your loved one or friend with special needs. A charitable bequest is simply a distribution of funding from your estate, through your last will and testament, to a
charitable organization that you support, e.g., an organization whose mission is to advocate for people with intellectual and developmental disabilities.
Types of Bequests
Cash Bequest: A charitable organization(s) receives a specific dollar amount from your estate.
Bequest of Property: A charitable organization(s) receives specific assets, such as securities, real estate, or tangible personal property.
Residuary Bequest: A charitable organization(s) receives all or a percentage of the remainder of your estate after the payment of any specific bequests and expenses.
IRAs/Retirement Plan: A charitable organization(s) is designated as a beneficiary of the remainder of your IRA or qualified pension or profit-sharing plan. How To make a Bequest Sample Beneficiary Designation Language for a Spouse and a Charitable Organization (VOR, a nonprofit organization advocating for high quality care and human rights for people with intellectual and developmental disabilities, is used as an example):
“The beneficiary is my spouse as long as he/she survives me. The beneficiary of any amount(s) remaining in the plan after the death of my spouse, or of the entire amount in the plan upon my death if my spouse does not survive me, or of any portion thereof that my spouse may disclaim, is designated to VOR, for its general charitable purposes and advocacy work.”
Sample Beneficiary Designation Language for a Bequest to Charitable Organization (“VOR”) “I give (_____ dollars or _____ percent of the residue of my estate) to VOR a national advocacy organization located in IL, a charitable
corporation (for its general purposes); these funds are not designated and it will be at the discretion of VOR to use the funds appropriately for their national advocacy work.”
It’s not easy or comfortable contemplating about a future in which you will not be available as your family member or friend’s primary caretaker or advocate. Such planning, however, is critically necessary to avoid unintended consequences in which your wishes are not carried out and the person you care about so deeply is left at risk of losing essential public benefits. Please consult with your lawyer and financial planner. •
ABOUT THE AUTHOR:
Julie Huso is Executive Director of VOR, a national non-profit organization advocating for high-quality care and human rights for people with intellectual and developmental disabilities. For more information, visit http://www.vor.net/. In celebration of 30 years of advocacy, VOR is offering complimentary subscriptions
to its Weekly E-News Update and The Voice, its tri-annual newsletter. This complimentary subscription will provide you electronic access to VOR’s publications until June, 2015. If interested, please email firstname.lastname@example.org, reference
“Complimentary Subscription,” and provide your name, address and email. Your information will never be shared or sold.
Disclaimer: This article does not provide legal advice and VOR is not a law firm. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer and tax accountant to receive professional advice for your financial and estate planning needs.