Special Needs Planning

Special Needs Planning is the planning for both the expected issues of a beneficiary and the unexpected issues of a beneficiary.

Expected issues of a beneficiary include any beneficiary who is likely to rely on government assistance for all or part of their needs for the rest of their lives. This may be due to an injury, a disease, or a mental ailment. Examples include:

  • Autism
  • Bi-Polar Disorder
  • Multiple Personality Disorder
  • Multiple Sclerosis
  • Acute Stress Disorder
  • Severe Depression
  • Schizophrenia
  • Psychosis

The list is not exhaustive and anyone can suffer from an issue that causes them to need government benefits for the rest of their lives or a period lasting a year or more. The important distinction when planning for these beneficiaries is that they are given assets in a third-party special needs trust. Some estate planners, unaware of the options available, will still counsel that they should be left out of the estate plan entirely, which is no longer the best option for many beneficiaries.

Third-party special (supplemental) needs trusts are funded with assets that do not belong to the beneficiary. Namely, they usually belong to the parent or another benefactor of the beneficiary and usually are not fully funded until death. This allows for the maximum control of the assets while the benefactor is still living and adjustments as to how much is in the trust at any time. Crucially, the third-party special needs trust doe snot need to pay back Medicaid for any of the government benefits that the beneficiary received during their lifetime.

But what about the unknown disability? What about the beneficiary who suffers from head trauma prior to the death of their benefactor but has no trust? If they receive the benefit outright, the special needs person can set up a first-party special needs trust in which they will not lose their government benefits and can keep the benefit in trust but they must repay Medicaid in full for any government benefits received after their death.

A third option is a 'pooled' trust which is administered by a trust company specializing in these types of trust. These types of trusts are pooled together with other trusts allowing for much more economical administration of small asset trusts. They can also be an option for trusts funded with high value assets but often include a provision that the trust company be the beneficiary of any remaining amount in the trust. Of course, any terms can be negotiated and pooled trust companies vary on their policies.