The Social Security Administration has increased its scrutiny of Special Needs Trusts (“SNT”). They are looking closely at such trusts to determine whether the trust language could be construed to require the trustee to provide the primary support and maintenance of a disabled beneficiary. They will deny benefits if they conclude that an expansive reading of the trusts creates the possibility that the trust is responsible for the primary care of the disabled individual.
We now advise clients with special needs children who are eligible for needs-based government benefits to create a free-standing (as opposed to our standard special needs language in our typical revocable living trust) SNT to better weather government scrutiny.
Parents with disabled or special needs children face unique estate planning challenges. The cost of supporting disabled children, especially ones with severe disabilities, is typically well beyond the financial means of most parents. They must rely on government programs to at least supplement the care they themselves are able to provide. The death of parents adds to the dilemma as such parents are no longer
able to physically care for their child.
It is not advisable to leave an outright inheritance to a disabled child. Any inheritance left outright would cause the beneficiary to own “countable” resources that would lead to disqualification from means-tested government benefits. The child’s inheritance would have to be exhausted (to no more than $2,000 in most cases) before the child would again be eligible for government support.
In the distant past, parents were advised to disinherit their disabled children. Disinheriting a disabled child was thought to be the only way to avoid disqualification from government programs. Unfortunately, this approach proved difficult for parents since it did not properly reflect their love for their disabled child. Another approach was to bequest the disabled child’s share to a sibling with the tacit understanding that the inheritance was to be used to support the disabled child. While not disqualifying the disabled child from government benefits, this second approach exposed the disabled child’s inheritance to a number of contingencies including the death, divorce, bankruptcy or dishonesty of the sibling.
Special needs trusts make assets available to a disabled individual (or an individual who might be expected to receive disability benefits in the future) without disqualifying the disabled child from government benefits. Assets held in a properly drafted SNT are not includible as a resource for SSI, Medicaid, food stamps, or Section 8 housing purposes; programs which require recipients to meet strict asset and income requirements. Basically, a SNT directs the trustee to hold and administer trust assets for the benefit of a disabled child with the stated intent that trust income and principal are intended to supplement – rather than replace – government benefits available to the child. Typical amenities include specialized medical, optical and dental care, transportation, non-covered medications, travel and entertainment, physical therapy, occupational therapy, electronic equipment, monitoring services and other services not provided under government programs.
Action Required: If you have a special needs child that is eligible for means-tested government benefits you must contact us immediately to create a free-standing Special Needs Trust.