By: Andrew P. Deaver
Special needs planning often arises in one of two circumstances. In one case, a person, through their estate plan, leaves assets to an individual with special needs (the "Individual"). In this case the need for special needs planning is known well in advance of any assets actually being left for the benefit of the Individual.
In the other common case, the Individual’s circumstances change unexpectedly. An already disabled Individual suddenly comes into money or an individual who already has money suddenly becomes disabled. In this case the need for special needs planning is unknown prior to the Individual unexpectedly receiving money or becoming disabled.
Failure to plan or planning incorrectly in either of these two common circumstances can lead to a disaster. Still, with proper planning, these unexpected events do not necessarily require that the Individual permanently lose or forfeit his or her eligibility for needs based government assistance, such as Supplemental Security Income or Medicaid ("Assistance"). Proper special needs planning, even after the occurrence of these events, can protect the Individual and his or her eligibility for Assistance.
While every situation and every Individual are different and while there is no one-size-fits-all plan, a First-Party Special Needs Trust ("FP SNT") can often be a useful tool, especially for an Individual who finds himself or herself in the second of the cases described above. The purpose of establishing a FP SNT is that the Individual’s assets will be available for the Individual’s needs and managed for his or her benefit, while not interfering with the Individual’s eligibility for Assistance.
FP SNTs, however, have some downsides. In every case, the Individual will lose control of the assets because the trustee of the FP SNT will manage the assets for the Individual’s benefit. Additionally, there is an upfront cost in establishing the FP SNT, along with the potential for the long term cost of paying the trustee’s fee to administer the assets for the remainder of the Individual’s life. Also any assets that remain in the FP SNT at the time of the Individual’s death are available to reimburse the state for any Medicaid benefits received by the Individual during his or her lifetime. Despite these downsides, a FP SNT can still be an appropriate solution for an Individual after an unexpected event.
Situations involving special needs planning are always complicated. These situations can go from complicated to frightening when unexpected events affecting the Individual’s eligibility for Assistance happen suddenly. Talking with someone knowledgeable about handling these situations can help alleviate that fright and provide confidence moving forward.