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Estate Planning for Persons with Special Needs

Estate Planning for Persons with Special Needs

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Certain situations require specific plans. A great planning tool that can be used for individuals, families and loved ones with a disability is a Special Needs Trust (SNT). Which, according to the Social Security Administration, disability is defined as “the inability to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical or mental impairment(s) which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.” The Special Needs Trust is arranged so the individual with the disability is the designated beneficiary of any inheritances, but the funds are being managed by a separate person, known as the Trustee.

The Trustee manages the funds left to the Special Needs Beneficiary so they will receive income from the trust for any current and future health, living, and maintenance expenses to be disbursed as the beneficiary may need, while preserving eligibility for needs-based governments benefits such as Medicaid and Supplemental Security Income (SSI).

There are two types of Special Needs Trusts: First-Party SNT and Third-Party SNT. A First-Party SNT is funded with assets and income that belong directly to the individual with the disability and who is the beneficiary of the trust. Requirements include the beneficiary must be under the age of 65, the trust must be irrevocable and provide that Medicaid will be reimbursed once the trust is terminated.

Often times, a First-Party SNT can be set up for accident victims when they receive funds from a personal injury settlement or litigation.

The Third-Party SNT is funded with assets belonging to someone else other than the beneficiary. Commonly this trust is used when family members leave gifts and inheritances behind to be designated to the beneficiary with provisions deciding how to distribute the funds accordingly. Unlike the First-Party SNT, Medicaid does not get paid back upon termination of the trust.

It is important for the Trustee to understand their roles in administering these types of Trusts. Special Needs Trusts are complex and it is best to consult with a legal expert to ensure the documents will work properly and meet the needs of the beneficiary. With proper planning, a Special Needs Trust can make a world of difference in a family’s life.

Barry represents beneficiaries and fiduciaries of estates and trusts regarding tax, and probate and trust law issues. He has authored or co-authored many articles on Estate Planning and Asset Protection strategies, including The Book of Estate Planning Strategies. He is a columnist for the Boca Raton Tribune, and he has been quoted in the South Florida Business Journal, the South Florida Sun-Sentinel. He’s been a guest on numerous television and radio shows; and he is currently writing a book on International Asset Protection.

1 Comment

  • Peggy Murphy
    Reply March 20, 2018 at 3:17 pm

    Great advice!

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