Sometimes referred to as supplemental needs trusts, special needs trusts (SNTs) are important legal documents that are included in an estate plan with the goal of providing clarity for loved ones should you become disabled. It is part of a collective estate plan, and its importance shouldn’t be underestimated.
These important documents provide the opportunity for those with a physical or mental disability – or one who has a chronic or terminal illness – to ensure your wishes are being met in terms of assets held in that trust. They’re also typically safe from inclusion when it comes to determining government benefits based on assets, which is an added comfort. Those benefits might include SSI, Medicaid, various rehabilitation programs, housing and medicines.
Using Special Needs Trusts
The law dictates that a supplemental needs trust or special needs trusts should be used for needs that the government does not provide. When properly drafted by an estate planning lawyer, these trusts can be a true blessing when the government does not provide complete coverage for the disabled person’s needs. If government benefits are unable to provide anything for that person, the trust kicks in and covers those needs in their entirety. This applies to those covered under Medicare or Medicaid (called Medi-Cal in California), as well.
The rules of Medi-Cal say these trusts may not be used for day-to-day expenses such as housing or food; however, they may be used to ensure a home is adequately prepared to meet the needs of the disabled person. An example would be wheelchair ramps.
Interestingly enough, the Medi-Cal food restriction does not apply to vacations, dinner parties or other entertainment where food is served. This is surprising to many people because they assume the trust is designed to cover their needs for survival only, when in fact, it can and should be used to bring enjoyment and new, positive experiences to the beneficiary.
Wealth and Special Needs Trusts
Many people believe their wealth exempts them from the possibility of a special needs trust for a loved one. While that’s true in other trusts’ purposes, a special needs trust is focused squarely on the disabled person and his current and future lifestyle. It’s not nearly as restrictive as many might believe. A family’s wealth may not be enough to provide for a disabled family member tomorrow.
Remember, the assets in the trust will not be counted as the owner’s assets and therefore, won’t prevent future benefits and program qualifications. Perhaps more importantly, a trust is off limits to creditors and may not be seized. Even if the beneficiary is sued, the assets in the special needs trust remain untouchable. Each trust is its own “entity”, complete with its own Federal Identification Number (Employer Identification Number) issued by the Internal Revenue Service. They are never registered under either the grantor’s or the beneficiary’s Social Security numbers
This is just the tip of the iceberg. To understand all of the intricacies associated with special needs trusts, it’s crucial you meet with an experienced and qualified estate planning lawyer who is well versed in SNTs, so that he or she can cover those bases in their entirety. When the future of a loved one is at stake, it’s time well spent.
- Planning for the Care of a Disabled Adult Child - October 1, 2023
- Navigating the Emotional Side of Estate Planning - September 29, 2023
- The SECURE Act – the Gift That Keeps On Giving - September 27, 2023
