From the desk of Kristina R. Hess, San Diego Estate Planning Attorney, Living Trusts, Wills, Probate Attorney
You’ve been a responsible planner for your family’s future, especially your child with special needs.
You’ve met with an attorney, set up a Supplemental or Special Needs Trust and you can breathe a sigh of relief. Your work is done, right?
Funding and forgetting about a Trust can be as detrimental as not forming one at all. And having one that isn’t properly written can render it completely useless.
Supplemental Needs Trusts (sometimes called Special Needs Trusts) allow people with mental or physical disabilities, or even people with chronic or acquired illnesses, to have unlimited assets held in Trust for their benefit. If you have a child, grandchild, or even a spouse with a disability, a Supplemental Needs Trust can ensure that they have the funds they need to maintain their lifestyle after you’re gone.
And if your Supplemental Needs Trust is drafted properly those assets don’t count as financial resources in determining your loved one’s eligibility for government benefits. The Trust provides for supplemental care over and above what government programs provide.
Even if your family has significant resources to care for a disabled family member, you should ensure that your Supplemental Needs Trust is written to specifically address the needs of that family member and their future lifestyle. Monies can be placed in the Trust and used for their benefit without being counted as a source of income. This allows the family member to qualify for benefits and programs they might not otherwise qualify for. Why sacrifice services (and the funds needed to pay for those services) if you don’t have to?
If you have a family member with a disability that could require significant care as they age, a Supplemental Needs Trust can give you peace of mind in knowing that they will have the resources they need when you are no longer there to provide them. But a word of caution – these are complex documents and require very specific language in order to be effective. Your Trust must address the following:
- The Specific Intent of the Trust
You cannot assume that because a document is called a Supplemental Needs Trust that it addresses what you intended to address. The Trust must specifically state that it is intended to provide “supplemental and extra” care over and above what government programs provide. It must state that it is NOT intended to be a basic support Trust and the funds cannot be used for basic support.
- Repayment Obligations
If the Trust is funded by parents, other third party sources or a personal injury Settlement, it will not be required to pay back Medicaid for expenses covered by the program. But if the Trust is funded by assets belonging to the disabled individual (such as earnings from a job, savings, certain Social Security back payments, personal injury recoveries not ordered into the Trust by the Court), the Trust may have to repay Medicaid for expenditures.
A properly drafted Trust must address paybacks to Medicaid or other governmental sources (both state and federal). Federal law requires that repayment language be included even if repayment is not required. Make sure you discuss repayment obligations and proper funding with your attorney.
- Changes to the Early Termination Provision Payback Requirements
Some Supplemental Needs Trusts contain language that allows termination of the Trust prior to the death of the beneficiary if, for example, there are no longer enough funds in the Trust to justify its continued administration or the beneficiary is no longer disabled. Effective October 1, 2010, there are significant changes in the Social Security Operations Manual System that will affect Trusts established on or after January 1, 2000. These changes could seriously impact the repayment provisions in your Supplemental Needs Trust if it contains early termination provisions.
Do you know how your Supplemental Needs Trust treats these issues? If improperly written or not modified to address changes in the Social Security Operations Manual or changes to other requirements in benefit programs, a Supplemental Needs Trust can very easily be raided by governmental benefit sources. It could even be declared invalid if not properly written. Not ensuring that your Trust documents properly address any applicable changes can lead to a loss of benefits, loss of savings or other legal and financial hardships that can easily be avoided.
If you have a family member that you wish to benefit with a Supplemental Needs Trust or you would like an expert opinion on the proper language in your Trust documents, call us to schedule your Family Wealth Planning Session today. We can identify what needs to be done to ensure that you have the appropriate language in your Trust documents and you are in compliance with the proper regulations to protect your loved one. Our Family Wealth Planning Session is normally $750, but this month I’ve made space for the next two people who mention this article to have a complete planning session with me at no charge. Call today (858)794-1426 and ask to speak with Sarah Kerr, and mention this article.
Create Legacies Today.
San Diego Estate Planning Attorney