Take care when providing for loved ones with special needs

Whether you have an adult child or grandchild with special needs, you may want to make sure that you provide for him or her as part of your estate plan. While your intentions may be honorable, you may want to be sure that the inheritance you intend does not interfere with any potential government benefits or programs your loved one may need now or in the future.

This means that you may want to avoid leaving an outright bequest. A regular trust may also cause issues, so what are you supposed to do? You could create a special needs trust.

What makes that type of trust special?

A special needs trust protects the assets within it while protecting an individual's access to government programs and benefits such as Medicaid, subsidized housing and Social Security Income, among others. The assets in the trust do not count toward your loved one's total assets and income. Even if these services are not necessary currently, they may be in the future. Making the appropriate preparations now protects the ability to access those benefits if needed.

You, and other family members, may fund the trust with the assets you set aside for your special needs family member. In addition, if your family member receives proceeds from a monetary judgment, they may go into the trust as well. Conversely, if anyone sues your loved one, the assets in the trust remain protected since he or she does not own them.

These trusts require some special language

A special needs trust must meet certain requirements:

  • Include language regarding payback to Medicaid
  • Include the Omnibus Budget and Reconciliation Act exception
  • Cannot be a basic needs trust
  • Provides only extra and supplemental care above government benefits
  • Does not contain a "Crummey Clause" regarding estate taxes

The trust must also reference certain portions of the Social Security Operations Manual that allow the creation of the trust, along with a copy of the United States Code provisions that apply. If you fail to create the trust properly, the assets you want your special needs loved one to have could end up vulnerable to creditors and prevent him or her from obtaining much-needed benefits.

Another important consideration is choosing the right person to serve as trustee. Unscrupulous individuals take advantage of people with special needs far too often. Even though there are no guarantees in life, the more particular you are when choosing a trustee, the higher the chances that your loved one will receive the care you intend. The trustee will also need to understand that one may only make distributions for certain expenses in order to retain its status as a special needs trust.

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