When your loved one, for example a child or grandchild, has special needs and receives government funding, it is especially important to create an estate plan that doesn’t jeopardize that person’s receipt of governmental benefits (such as Supplemental Social Security Income and Medicaid). Your Will should be carefully drafted to prevent that person from inheriting assets directly. Additionally, a carefully drafted Third Party Special Needs Trust can allow for the use of funds as provided in the trust for the benefit of your loved one while preserving much needed governmental benefits. This type of trust gives the grantor (creator of the trust) the ability to direct the ultimate beneficiaries of any funds remaining upon the passing to the special needs person. The trust can be funded through inheritance as directed in a Will, by beneficiary designation on an account or policy or by direct gift to the Trust from a third party. It may not be funded with the special needs person’s own funds.
If a special needs person receives funds directly because there was no Will or because the Will wasn’t properly drafted or s/he is a direct beneficiary of a life insurance policy or other beneficiary designated account (i.e. a 401k or an IRA) or is a recipient of proceeds of a lawsuit, then a first party special needs trust (also known as a payback or self-settled special needs trust) would need to be created and approved by the government. to avoid loss of government benefits. These funds owned by the special needs person would be used to fund the trust and can be used for his or her care as permitted in the trust. Unlike a Third Party Special Needs Trust, this type of trust requires that the government be reimbursed for benefits paid before any funds could go to other beneficiaries following the death of the special needs person.
We, at Connor, Weber & Oberlies, can assist you with your Special Needs Estate Planning based upon your family’s particular circumstances.