What Is, and Who Needs, Special Needs Planning?
Too many attorneys believe that special needs planning and special needs trusts are only for young special needs children who are currently receiving some form of financial assistance from either the State or Federal government. That is a narrow view of special needs trusts. It does a disservice to many people who need a special needs trust and special needs planning for a loved one who does not fit into this narrow definition.
Special Needs Children
Yes, it is especially important to do special needs planning for special needs children receiving government assistance. Otherwise, such special needs children may get disqualified from those benefits when they inherit money from anyone; parents, siblings, grandparents, etc. However, that is only one reason to use special needs trusts. Special needs planning and special needs trusts are not limited by age, finances, government benefits, or relationship to the planner. Special needs children can be any age.
Other Special Needs Individuals
The only question is: does the person you are concerned about have both the mental and physical ability to care for themselves now, and in the future? If not, then that person needs special needs planning and probably a Special Needs Trust. It doesn’t matter if they were born with their condition, or if its a result of an accident or illness later in life. It doesn’t matter if they can live alone, or in a group home. If their physical or mental condition prevents them from being self-sufficient, or puts them at risk of being a victim if you are not there to protect them, then they need special needs planning.
The person you are planning for can be your special needs child, sibling, spouse or parent. If you are now, or will be responsible for them in the future, then you should have a plan. You need a plan in place for them in the event of your death or disability.
Do You Need A Special Needs Trust?
Why use a special needs trust if the person is not receiving government benefits? First, just because they are not on government benefits now, you can’t be sure they never will be in the future. They may not be on government assistance now because their parents’ income is too high, or because of an accident settlement, or they are living on their own money from before an accident. Whatever the reason for the disabled person not being on government benefits, there is no guarantee that the financial situation will not change. Typically, the event that changes the financial situation for special needs children is the death or disability of their guardian. The very person who should have set up the special needs trust in the first place. Unfortunately, then it is too late.
Another reason special needs children might not qualify for government benefits is that their condition might not be bad enough. Again, can you be sure that their condition will not get worse as they age? Additionally, the government tests change all the time. Once you are gone or disabled yourself, it will be too late to put a special needs trust in place.
Even if you know that the individual will never need government assistance, they may still need special needs planning. If that person will not be able to take care of themselves they need special needs planning. Can they easily be taken advantage of, or do they have problems managing their money or dealing with the world? Then they need a plan. Special needs planning can use an actual Special Needs Trust for individuals who are now or might receive governmental benefits, or a more traditional Multigenerational Trust that just has some special protections added to protect the beneficiary.
Types of Special Needs Trusts
When discussing an actual Special Needs Trust (as opposed to a regular trust with extra trustee protections), it is important to remember that there are two types of Special Needs Trusts, (i) The Frist Party Special Needs Trust, and (ii) the Third Party Special Needs Trust.
The First Party Trust is specifically for special needs individuals who have their own assets that they want to protect. These assets might be from a job or retirement account they had before an accident caused them to be disabled. The assets might also be from their insurance from the accident. They also may have inherited assets before they became disabled that need to be protected. Only money and assets from the special needs person can go into a First Party Special Needs Trust.
The Third Party Special Needs Trust can receive money and assets from anyone else other than the special needs individual. Each family member and friend of the special needs individual does NOT need their own Third Party Special Needs Trust. As long as a person does not want to control what happens to any unused trust assets after the special needs individual dies, then he/she can contribute to a Third Party Special Needs Trust established by someone else.
Other than who can contribute to each trust, the main distinction between the two trusts is that any assets left in a First Party Special Needs Trust after the special needs individual dies all go to the State to reimburse the State for any benefits the person received. Remaining assets in a Third Party Special Needs Trust can go to anyone named in the trust by the trustmaker.
To find out more about special needs planning for special needs children or family member contact us for a complimentary meeting.
Matthew V. Piwowar is an estate planning attorney based in metro Grand Rapids, Michigan. Mr. Piwowar is a member of the National Network of Estate Planning Attorneys and the Michigan Forum of Estate Planners.
Learn more about multigenerational estate planning here.