My toddler son, Mateo, is on the autism spectrum (ASD). Parents with a child with special needs know that the day you receive a diagnosis such as this, your life changes. Like most parents with kids with special needs, you start a “new normal” and become a super-parent. You absorb everything there is to know regarding your child’s new challenge. You do this because you are determined for your child to have the best life possible.
My son is only four. But I would be remiss if I didn’t admit that I lose many nights of sleep thinking of his future. My husband and I now have the hard conversations about how life can look for our child, and setting up a trust is at the top of this planning list. We spoke with Elder Law Attorney Amy C. O’Hara, a partner with the White Plains law firm of Littman Krooks LLP, who focuses on special needs planning, guardianship, elder law, and trusts and estates.
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Why a Supplemental Needs Trust May be Appropriate
Caring for a child with lifelong disabilities comes with many responsibilities. One of these responsibilities is ensuring your child is financially protected in the event they need to rely on government benefits such as Medicaid and Supplemental Security Income (SSI) for support throughout their lifetime. In this situation, a supplemental needs trust is an essential planning tool necessary for your child.
What is it?
A supplemental needs trust, sometimes referred to as a special needs trust or SNT, is a type of trust that preserves your child’s eligibility for means-tested government benefits. Because your child does not have control over the assets in the trust, the assets are not counted as your child’s assets. Generally, there are two types of supplemental needs trusts: third party and first party.
Third Party
A third-party supplemental needs trust is funded with assets belonging to a person other than your child. In fact, no assets belonging to your child may ever be used to fund this type of trust. Third party SNTs are an ideal estate planning vehicle for you as a parent or other family members and friends who wish to leave an inheritance to your child. Not only will a third party SNT shelter an intended inheritance, it can provide for your child’s lifelong needs if funded with sufficient assets and managed properly. With third party SNTs, there is no Medicaid payback required upon your child’s death; rather, the person creating the trust decides how the remaining assets are distributed.
First Party
A first-party supplemental needs trust is funded with assets or income that belong to your child. In order for the assets of this type of trust not to count for Medicaid or SSI purposes, federal law requires that your child must be under the age of 65 when the trust is created and funded; the trust must be irrevocable and provide that Medicaid will be reimbursed upon your child’s death or upon the termination of the trust, whichever occurs first. Also, your child must be classified as disabled by the Social Security Administration and the trust must be administered for your child’s sole benefit. Typical funding comes from child support, a personal injury settlement, or an outright inheritance from a well-meaning family member who did not understand that such a gift could disqualify your child from benefits.
The Trustee
With any supplemental needs trust, the trustee must be given absolute control over the distribution of the trust assets. Your child cannot demand distributions from the trust. Nor can your child have the authority to revoke or amend the trust; otherwise, the assets are counted as an available resource to your child causing a loss of government benefits. Further, the trustee should never give cash outright to your child because this also would cause a reduction or loss of benefits. A few examples of what can be paid from the trust include medical expenses not covered by Medicaid, special therapies, recreational and cultural experiences, vehicles, clothing, sometimes food and shelter, and, for the most part, any services or items that enrich your child’s life.
Thoughtful consideration is a must in choosing the right trustee. In choosing a trustee, consider the potential trustee’s ability to be sensitive to your child’s disabilities; actively monitor any services provided; prudently invest trust assets; and utilize the trust assets for your child’s needs. A trustee can be your child’s guardian, if your child requires a guardian, family member, close friend, and/or a professional corporate trustee. More than one trustee can serve at any given time. It is common to have both a professional and an individual serving as trustees together.
Supplemental needs trusts are complex and there are important considerations to keep in mind regarding public benefits, tax implications and the impact of the trust on your overall financial and estate plan. It is also essential for trustees to understand the terms in the written trust agreement. A legal professional experienced in special needs planning can ensure that the supplemental needs trust agreement meets the needs of you and your family and the trustee who will ultimately be responsible for administering it.
Amy C. O’Hara is a partner with the White Plains law firm of Littman Krooks LLP and focuses her practice on special needs planning, guardianship, elder law and trusts and estates. She a Vice President of the Board of Directors of the Special Needs Alliance, a national, not-for-profit organization dedicated to assisting families planning.
