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Special Needs Trusts

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Establishing a Special Needs Trust Can Preserve Public Benefits

A special needs trust can provide valuable resources to a disabled individual while preserving any public benefits he or she is receiving.

A special needs trust is a trust designed for beneficiaries who are disabled, either physically or mentally. Often, individuals with disabilities are on public benefits. When on public benefits, disabled persons are usually subject to specific asset limits. If a disabled person exceeds the applicable asset limits, then he or she may lose public benefits until he or she is again under those asset limits. Additionally, the assets of the disabled person may be subject to estate recovery after he or she passes away.

Contrary to popular belief, it is not necessary to disinherit a disabled beneficiary. If you are someone who desires to leave a portion of your estate to a disabled person, you should strongly consider creating a special needs trust for that beneficiary. An individual may still include a disabled beneficiary in his or her estate plan by leaving the assets intended for the disabled beneficiary to a special needs trust instead. When an individual creates a special needs trust for a disabled beneficiary and funds it with assets that do not belong to the beneficiary, that is called a third party special needs trust.

Assets in a third party special needs trust are managed by a trustee–that is someone other than the disabled beneficiary. The trustee may generally use assets in a third party special needs trust to pay for things on behalf of the disabled beneficiary that public assistance would not cover. The two primary benefits of a third party special needs trust include: 1) the assets in a third party special needs trust do not count against the asset limits of the disabled beneficiary, so the disabled beneficiary should not lose his or her public benefits; and 2) if there are any assets left in the third party special needs trust upon the death of the disabled beneficiary, those assets are not subject to estate recovery.

Unfortunately, disabled beneficiaries are not always left assets in a third party special needs trust. More often than not, disabled beneficiaries are left assets directly. As noted above, when that happens, the disabled beneficiary may lose his or her public benefits until the assets are again reduced to allowable limits. If this occurs, the disabled beneficiary may consider having a first party special needs trust established.

Although assets in a first party special needs trust are still managed by a trustee, such assets will not count against the asset limits of the disabled beneficiary. The most significant disadvantage of a first party special needs trust, however, is that such trusts are subject to significant scrutiny by the Social Security Administration. Also, depending upon whether the disabled beneficiary has sufficient capacity, a first party special needs trust may need to be established by a Court. Finally, any assets in a first party special needs trust will be subject to estate recovery after the death of the disabled beneficiary.

If you are at all interested in discussing the use of a special needs trust for any reason, then please contact Sturgul and Long, S.C. to schedule a consultation today.

Our Process

1. Schedule an Initial Consultation

Our interaction will start when you call our office to schedule an initial consultation.  We can conduct the initial consultation in person at one of our many office locations, virtually via Zoom, or via telephone.  Prior to the initial consultation, we will send you a client questionnaire to complete.  We will also let you know what documents to bring to the initial consultation.  We will schedule this initial consultation far enough out in order to give you sufficient time to complete the client questionnaire and gather relevant materials.  However, if you are facing the potential loss of public benefits, then we will try to schedule this appointment as soon as possible.

2. Initial Consultation

Our initial consultations usually last between sixty and ninety minutes.  To have a productive initial consultation, it is extremely important that you come prepared–which means bringing your completed client questionnaire and other relevant documents.  We will thoroughly review your situation in order to determine whether a special needs trust is necessary.  If it is not necessary, we will propose some alternative solutions.  We will quote you a flat fee for any work that we recommend. 

3. Prepare Special Needs Trust

After we are retained, we will then prepare the appropriate special needs trust.  We will also guide you through transferring assets to the trust and make certain you understand how to make requests for distributions.  Finally, we will help you properly notify any agencies that require any information about the special needs trust.

Do I need to disinherit someone who is disabled and collecting public benefits?

No.  If you wish to include a disabled beneficiary in your estate plan, then you can establish a third party special needs trust for his or her benefit.  This will allow funds to be set aside for the disabled beneficiary without having any impact on the benefits that he or she receives.  Additionally, these assets will not be subject to estate recovery upon the death of the disabled beneficiary–they will proceed to wherever you direct them to.

Is it expensive to establish a special needs trust?

Generally it is not, especially if you are doing it in the context of your own estate planning.  Additionally, depending upon the state that you are in, there are some programs that help subsidize attorney fees.  Given the potential subsidies available, it is often more expensive to do nothing.

I just received money and now I am losing my public benefits, what can I do?

You can consider establishing a first party special needs trust to hold those assets.  This would allow you to retain the public benefits that you are on.  Depending on how much you are receiving, there may be subsidies available to help out with the cost of establishing a special needs trust.

Is a special needs trust necessary?

Not always.  There are some alternative options available that do not involve establishing a special needs trust.  You should speak with a qualified attorney to help advise you of the applicable options.

Common Estate Planning Tools

It is important to make sure that you have a complete estate plan.  Even if you just need a special needs trust, you should consider whether there are any other important documents that you need.  For example, you may become incapacitated before you die and it is important that someone else has legal authority to make health care and financial decisions on your behalf under such circumstances.  Please click on a topic below to learn more about it.  In our estate planning practice, the following documents are often used to form a comprehensive estate plan:

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