Special Needs Planning
DuPage County Lawyer for Supplemental Needs Trusts
Estate planning for families with a special needs child or adult is a difficult but necessary task. In many cases, government programs and public assistance are crucial for disabled children and adults. Sean Robertson is the Principal Attorney at Robertson Legal Group, LLC, which concentrates in estate planning, special needs estate planning, asset protection, and guardianship planning for disabled adults and family members.
A Relevant Case Study
Recently, our family was faced with a situation in which an inheritance to a disabled adult became big issue. For the sake of confidentiality, we will call the disabled adult “Jackie.”
When Jackie’s sister died, Jackie received an inheritance through an individual retirement account (IRA) from her sister. The attorney who helped set up the sister’s estate plan was an older lawyer who did not work with estate planning documents very often. Unfortunately, the attorney did not establish a Special Needs Trust or another specialized instrument in such a way that fully protected Jackie’s eligibility for government benefits.
Our family is still waiting to see whether Jackie will be ineligible for government benefits until she spends down the assets she received in her name as well as those received by her Trust. The primary issue is that Medicaid and Social Security may consider the Trust’s assets as available to Jackie, which could compromise her eligibility government benefits.
Social Security Programs
There are two separate programs that are often referred to as “Social Security” benefits, each of which can help a special needs adult in different ways. The first program is called Supplemental Security Income (SSI), which is a need-based government benefit. To qualify for SSI, a recipient must have less than $2,000 in assets and a limited income.
The second program is called Social Security Disability Income (SSDI), which is intended to help those who are not able to work. The primary difference between the two programs is that SSDI is only available to those who have worked enough and paid into the SSDI system. Social Security Disability Insurance also requires a medical doctor to make a determination of disability. SSDI is not a need-based program, and most SSDI recipients had the ability to work at some point and can no longer work due to illness, injury, or another disability.
Special needs families are most often concerned about Supplemental Security Income because their family member with special needs only worked infrequently or not at all. Generally, special needs adults who rely on public assistance receive food stamps (also called Supplemental Nutrition Assistance Program, or SNAP, benefits), Medicaid, and SSI. Special needs adults often reside with their parents, and their parents provide a significant portion of the necessary care.
Guardianship of Disabled Adults in Aurora
Family members of a person with special needs may decide to seek guardianship of the special needs individual. There are two types of guardianship in Illinois: guardian of the person and guardian of the estate. In many cases, a parent or grandparent will seek appointment as guardian to help manage the disabled person’s finances and health needs. However, the appointment of a guardian becomes especially important when one or both parents are deceased.
Careful Special Needs Planning
It is unfortunately easy for a person to make estate planning decisions that could inadvertently affect a family member with special needs in a negative way. For example, any direct inheritance or certain types of trusts established in the family member’s name could jeopardize his or her eligibility for government benefits.
Such problems can be avoided by including a springing provision in a Last Will and Testament or a Living Trust. A springing provision allows for creation of a Special Needs Trust, even if there are no heirs or beneficiaries with known disabilities when the documents are created. This approach accounts for the possibility that disabilities and special needs can develop later in life and helps those individuals remain eligible for the assistance they need.
Special Needs Trusts
There are two types of Special Needs Trusts, also called Supplemental Needs Trusts: “Third-Party Special Needs Trusts” and “Self-Settled Special Needs Trusts.” A Third-Party trust is usually created by a parent, grandparent, sibling, or another family member of an individual with special needs, and the Trust is normally funded upon the creator’s death with proceeds from the creator’s life insurance policies and assets directed by a Last Will and Testament or Living Trust. Unlike with most Trusts, the Beneficiary of a Special Needs Trust cannot be given any control over the Trust itself. A Special Needs Trust is an Irrevocable Trust, which means that its terms cannot be modified or revoked. The Beneficiary of a Special Needs Trust also cannot assign the proceeds of the Trust to any other party, including divorcing spouses or creditors.
As with any Trust, a Third-Party Special Needs Trust must be properly set up and must have a Trustor (or creator) and Trustee. A Third-Party Special Needs Trust must have a Trustee who is financially sound and organized. The role of a Trustee is a significant role with significant responsibility and significant power over a disabled adult’s life. A corporate or professional trust must be considered, and adequate life insurance coverage and other assets must be considered. A Third-Party Trust for the disabled adult often will have a provision that allows the Trustee to petition the probate court and spend Trust’s assets for the benefit of the Third-Party Special Needs Trust Beneficiary.
Unlike a traditional Living Trust, a Special Needs Trust has distribution guidelines which prohibit certain types of distributions such as direct payments to the disabled adult beneficiary. The assets in the Trust must be used to maintain the beneficiary’s health, safety and other needs, when in the discretion of the Trustee, the services are not provided by any other government agency, office, or department. Often, these financial transactions are considered “supplemental expenditures” because they are designed to supplement the government benefits for the disabled adult. The goal is to maximize government assistance benefits while minimizing the expenditure of the Third-Party Special Needs’ Trust assets, thereby preserving funds and strengthening the financial resources available to the disabled adult.
The Third-Party Special Needs Trust will prohibit any transfer of assets that will be re-titled into the disabled adult’s name such as an individual retirement account or a living trust. For example, a disabled adult must not directly inherit real estate or any other assets. Special attention must be given to family member’s possible intestate succession inheritance issues such as a sister that fails to have an estate plan and has no children. Any direct inheritance to the disabled adult is directly prohibited.
The Trustee should annually evaluate educational, training, and residential opportunities to maximize the self-sufficiency (as much as possible) of the disabled adult. The Trustee may consider using some of the funds in the Trust to purchase a home or condo for the disabled adult. Family members often feel uncomfortable co-signing for their disabled adult relatives, so maximizing financial resources is always a priority. A Trustee should also actively evaluate recreational, leisure, and social needs of the disabled adult as well. As with most Trusts, careful consideration must be given to Successor Trustees and alternative beneficiaries upon the disabled adult’s death. Skilled and experienced estate planning counsel is essential to protect your loved ones and to develop a practical and realistic estate plan.
Self-Settled Special Needs Trusts
The second type of Special Needs Trusts is Self-Settled Trust, also known an OBRA Trust, after the Omnibus Budget Reconciliation Act (OBRA) of 1993 that created this type of Trust. Unlike a Third-Party Special Needs Trusts, a Self-Settled Special Needs Trust is established by the disabled person themselves. For example, a disabled person who receives a large settlement from a personal injury claim could create a Special Needs Trust with the proceeds of the settlement. A properly-created Self-Settled Special Needs Trust established before age 65 allows the disabled individual to remain eligible for Medicaid and other government benefits despite having more than $2,000 in assets.
In contrast to disabled adults with Third-Party Trusts, those with Self-Settled Trusts must pay back any government benefits they receive after the creation of the Trust. This means that upon the disabled person’s death, the funds in the Trust must be used to pay back the government. Any remaining assets can then be distributed to contingent beneficiaries.
Contact a Naperville Special Needs Estate Planning Attorney
Sean Robertson and Robertson Legal Group, LLC concentrate in estate planning, special needs estate planning, and asset protection for families and individuals in the Western Suburbs of Chicago. From offices in Naperville, we provide customized and cost-effective estate planning solutions for families with special needs. Sean Robertson is a graduate of DePaul University College of Law and the University of Illinois at Urbana-Champaign. He has over 14 years of estate planning experience and is passionate about helping families with their customized estate planning legal solutions. Call 630-882-9117 or use our online form to contact our office today.