When you have a family member with special needs, planning your estate requires extra care. At Cucinelli Geiger, PC, our exceptional team of Virginia estate and special needs planning attorneys can help you explore your options for ensuring your loved one's dignity, comfort, and quality of life—while preserving their eligibility for vital government benefits and services.
Special needs trusts (SNTs), also known as supplemental needs trusts, are extremely useful for this purpose. There are several different types of SNTs, all of which are designed to manage resources for a person with special needs without risking their continuity of care.
If you are considering making a special needs trust a part of your estate plan, here's what you should know about the different types of SNTs, and how our legal counselors can help you protect your family member's future.
The Limitations of a Traditional Estate Plan: When You Might Need an SNT
Setting aside assets and inheritances for beneficiaries is a key part of the estate planning process. Planning for the future is particularly important if you have a family member with special needs, and our clients are often eager to make sure that their loved one has everything they need to live a comfortable and productive life. That's both admirable and understandable.
However, if the person in question has a physical or mental disability or chronic illness and relies on assistance from public programs like Supplemental Security Income (SSI) or Medicaid, passing property or other assets to them directly via a standard estate plan can do a lot more harm than good.
This is because, as needs-based, means-tested entitlements, SSI and Medicaid have strict income limits. Exceeding them isn't difficult—even if you don't consider yourself wealthy by any stretch of the imagination. If you set aside resources for a disabled family member in a traditional will, it will be counted as their income, resulting in a reduction of benefits or potentially causing them to stop entirely.
SSI and Medicaid provide basics like medical treatment and monthly payments that can be used to cover things like food, clothing, and shelter, but you want your loved one to have resources for extras, frills, and luxuries to enhance their quality and enjoyment of life. A special needs trust could be the solution to your problem.
Types of Special Needs Trusts
There are three main types of SNTs: first-party special needs trusts, third-party special needs trusts, and pooled special needs trusts. All three types manage resources for individuals with disabilities or chronic illnesses without jeopardizing eligibility for government benefits. The key difference between first-party, third-party, and pooled SNTs is who funds them. Here's what else you should know about the various types of special needs trusts.
First-Party Special Needs Trust
A first-party SNT, also known as a self-settled SNT, is funded by the person with special needs, using his or her own assets. This type of SNT may be useful for disabled individuals who have—or expect to receive—assets that would make them ineligible for SSI, Medicaid, or other public benefits. You may want to consider a first-party special needs trust if you're receiving an inheritance; a settlement or financial award from a lawsuit, such as a personal injury or medical malpractice case; a workers' compensation claim; or a divorce settlement. A parent, grandparent, legal guardian, or the court can establish an SNT for the benefit of a disabled minor.
Keep in mind that these trusts must be unchangeable—or "irrevocable"—and the beneficiary must be under age 65 when it is established. Additionally, when the beneficiary dies, the Virginia Medicaid program must be reimbursed using money from the trust.
Do you think a first-party special needs trust may be right for you? Contact our firm to discuss your needs.
Third-Party Special Needs Trust
Third-party special needs trusts are established and funded by a donor, usually a parent or other relative, often as part of an estate plan. These trusts can receive gifts from the estate that can be used to supplement the beneficiary's government support during the donor's lifetime. When the donor dies, the same SNT can be used to manage the inheritance of the person with special needs.
Third-party SNTs offer significant advantages compared to other types of special needs trusts. Most notably, because the assets in the trust never belonged to the disabled person, they don't have to be used to reimburse Medicaid after the beneficiary's death. Instead, the donor can designate that they go to other family members or organizations that they care about.
Not only can these trusts be any size, but they can also own investments or real estate, be the beneficiary of life insurance policies, and be used for almost anything that isn't covered by your special needs loved one's government benefits. Additionally, third-party special needs trusts can be set up for beneficiaries of any age, unlike first-party trusts, which can only be established to benefit people under age 65.
Interested in exploring options for establishing a third-party special needs trust for a disabled relative? Talk to us about your needs and goals.
Pooled Special Needs Trusts
Funded by the individual with special needs or by a donor on their behalf, a pooled special needs trust is a type of SNT that's administered by a non-profit organization that manages and invests funds for people with disabilities. Because the funds are pooled together, pooled SNTs can be an affordable option while still providing access to specialized services.
Want to know more about pooled special needs trusts? Schedule a consultation.
Schedule a Consultation for More Information on Special Needs Planning Solutions
Special needs planning can be challenging, but our accomplished attorneys are here to guide you each and every step of the way. Contact us today to schedule an appointment for a consultation to discuss your goals and how we can help you achieve them.