Imagine a situation where someone inherits a money or a home after the death of a loved one and it ruins their life. This may sound like the set-up for a B-level comedy, but it is actually a horror story that plays out for many people with special needs.
To be clear, leaving money or other assets to someone with special needs (such as mental or physical disabilities) is not in and of itself a bad idea. The sentiment behind the action is admirable. It is how the transfer of assets is done that actually causes problems.
If someone with special needs relies on government benefits (or will have to rely on them after their current caretakers pass away) like Supplemental Security Income (SSI) and Medicaid to meet some of their basic needs, inheriting anything more than a couple thousand dollars could put those benefits in jeopardy. If the government determines that someone has the assets to meet their own needs, they will become indelible for benefits until they spend down their assets. Sometimes the government can even come in and take away assets to reimburse itself for benefits that were provided in the past. Imagine how traumatic dealing with this is at the same time one is grieving for a lost loved one.
In order to get around this, the government has okayed the use of an estate planning tool called a special needs or supplemental needs trust. This trust allows people who rely on government benefits to inherit assets in a way that does not make them ineligible for government assistance. The trick is the beneficiary is never the owner of the assets, the trust is. The assets in the trust are managed and spent by a third party on the beneficiary’s behalf.
One of the best things about these trusts is that they allow people with special needs to live better lives. Government benefits only cover basic needs (food, shelter, clothing, and medical care). The funds in special needs trusts can be used to pay for other things the beneficiary needs, like medical and dental expenses that must be paid out of pocket or haircuts.
The funds can also be used to pay for things the beneficiary doesn’t really need, but that would enrich their life. For example, trust funds can be used to pay for educational classes or occupational therapy, or for trips to the movies, or cover the cost of flying in a family member to visit for a special occasion or health scare. Basically anything that will enrich the beneficiary’s life is fair game.
Special needs trusts are a critical component of every estate plan that involves someone with a disability who relies on government benefits to meet their basic needs. They are not expensive to include in a typical plan, but the benefits they provide can make a huge difference in the life of someone with a disability.