What is the Value of a Special Needs Trust?

A special needs trust, also referred to as a supplemental needs trust, provides for a person with a mental or physical disability and allows the beneficiary to receive gifts, lawsuit settlements, or other funds and yet not lose his or her eligibility for certain government programs, including, Medicaid, Supplemental Security Income (SSI), and other state benefits.  Under current Federal law, any inheritance of more than $2,000 disqualifies individuals with disabilities from most federal needs based assistance and some state public assistance programs may also be affected.  Creating a special needs trust may be essential to protect a disabled individual’s financial future. As the name implies, a special needs trust is not designed to provide basic support, but instead to pay for other items that cannot be paid for by public assistance funds.  This includes things like education, rehabilitation, personal care attendants, out of pocket medical and dental expenses, specialized equipment, insurance, transportation, and home furnishings.  The trust can also be used for life-enhancing items like computers and electronics, recreation, entertainment, and vacations. The primary advantage a special needs trusts offers over a direct gift or inheritance is that the assets in the trust do not actually belong to the beneficiary and so does not jeopardize the beneficiary’s eligibility for government programs. A special needs trust holds title to property for the benefit of the child or adult who is disabled. Because you cannot leave property or cash directly to your disabled loved one, you leave it to the special needs trust. In its simplest form, a trust is a relationship between the person supplying the trust funds, the trustee who administers the funds according to the donor’s wishes, and the beneficiary who will receive the benefits of the funds. The person who supplies the trust funds has the ability to set forth in a document instructions regarding how he or she wants the funds to be spent.

How do I choose a trustee?

The most important and often difficult issue in creating a special needs trust is choosing the trustee who will have discretion over the assets in the trust and will be in charge of spending money on behalf of the beneficiary.  You must choose a trustee who has the necessary expertise to manage the trust, including making proper investments, keeping the accounts, paying bills, and preparing tax returns. Though a professional trustee will have these skills, they may be unfamiliar with the beneficiary and his or her unique needs. If you are uncomfortable with the idea of an unknown outsider managing your loved one’s affairs, it is possible to simultaneously appoint both a professional trustee and a family member as co-trustees. Make sure that whomever you choose is financially skilled, well-organized, and, most importantly, ethical. Remember, the trustee you choose will have discretion over the assets in the trust, and will be in charge of spending money on behalf of the beneficiary. The special needs trust lasts for as long as necessary, which usually means the trust continues until the beneficiary dies, or the funds are entirely depleted.

How do I fund a special needs trust?

A special needs trust can hold almost any type of asset, including investments, stocks, bonds, a home, other real estate properties and cash.  But a parent or parents with a child with special needs should consider buying life insurance to help fund the special needs trust for the child’s future support. What may look like a substantial sum to leave in trust today may not be enough to continue the care that the parent(s) had previously provided. The more resources you have available, the better the support that can be provided the child. And if both parents are alive, the cost of “second-to-die” insurance — payable only when the second of the two parents passes away — can be fairly nominal.  By creating the special needs trust early, extended family and even friends have the opportunity to make gifts to the trust or include the trust in their own estate plan.

Do I need to consult an estate planning attorney?

The most important thing you need to do when creating a special needs trust is to make sure that federal and state benefits are not put at risk or invalidated, and that the beneficiary receives the individual care that the parent(s) provided when they were alive.  There are several different kinds of special needs trusts.  And since this is a complex area, it is best to consult a Virginia estate planning attorney with expertise in special needs trusts.  Your attorney will make sure that the trust protects government benefits and is customized to your child’s future needs.

About Melone Law, P.C.

Melone Law, P.C. is a general practice law firm based in Reston and serves the Northern Virginia area.  Our practice areas include Family LawDivorce and Special Needs ChildrenTraffic Ticket DefenseDUI/DWI Defense, and Trust and Estate Law.  Our philosophy is to provide all of our clients with the highest quality legal representation, innovative legal solutions, and unsurpassed dedication to customer service.  Through our high standards, we strive to be a trusted resource to our clients. We know from experience that a successful attorney-client relationship depends on our ability to understand your needs and objectives.  For more information about special needs trusts and our estate planning services, contact our office today at 703.995.9900 or visit our website: www.MeloneLawPC.com.

ABLE Act and Financial Planning for Special Needs Children in Virginia

ableThe state of Virginia was the first state to approve legislation related to the ABLE Act (Achieving a Better Life Experience) of 2014. The ABLE Act allows a person with a disability, or his or her family to set up a special savings account to cover expenses related to the disability. This can be a big help in allowing a disabled person or his or her family to save for the future without jeopardizing eligibility for Social Security or other government programs. The savings account is similar to a 529 savings account, allowing savings up to $100,000 for the benefit of a disabled person. These ABLE savings trust accounts will be administered by the Virginia College Savings Plan, with the rules applying to the account:
  • A person is eligible for the ABLE savings trust account if he or she became disabled prior to the age of 26 and is currently either receiving Social Security Disability Insurance or SSI, or files an IRS-approved disability certification.
  • There is no federal income tax on earnings from contributions to the ABLE savings trust account.
  • The ABLE account can help an individual and/or his or her family to:
  • Save for or pay for education;
  • Save for or pay for a home;
  • Save for or pay for a vehicle;
  • Save for or pay for employment training;
  • Save for or pay for assistive technology;
  • Save for or pay for health, prevention and wellness;
  • Save for or pay for personal support services;
  • Save for or pay for financial management or administrative services, or
  • Save for or pay for certain other expenses.
  • ABLE savings trust accounts are exempt from Virginia taxable income;
  • Once the assets in the ABLE account reach $100,000, if the beneficiary is receiving SSI benefits, those benefits will be temporarily suspended until the assets drop below $100,000, with no re-application required.

Eligibility for Medicaid

The primary benefit of ABLE is to prevent a disabled person from losing Medicaid eligibility due to an excess of assets, however there is one caveat. Should the qualifying person die, or is no longer disabled, remaining assets in the ABLE account will be used to pay back the state Medicaid fund. The amount to be paid back will be based on the amount Medicaid paid the qualifying person after the ABLE account was first set up. This is considered a serious drawback for most families who want to be able to fund a trust for the disabled family member while retaining the right to allow other family members to eventually benefit from the remaining assets in the ABLE account. The stipulation that Medicaid will be paid back in the event the disabled person dies is being fought by the National Academy of Elder Law Attorneys. There is an alternative to ABLE, known as a Third Party Special Needs Trust. Under a Special Needs Trust, assets are not recoverable by Medicaid at the time of the beneficiary’s death, providing the trust was funded by assets of the parent or other third party, allowing for a secondary beneficiary. Because of this an ABLE account should not be a substitute for a Special Needs Trust, and should be only a limited substitute for a First Party Special Needs Trust. Although Virginia was the first state to enact ABLE, it has since been enacted in West Virginia and North Dakota and is pending in Kansas. Legislation for ABLE is under consideration in 29 additional states. If you are considering setting up an ABLE account, it is important to consult an experienced Virginia estate planning attorney who will take into consideration what you want to accomplish for the future of a special needs person and then translate those wishes into the best plan for your situation. Contact the attorneys at Melone Law today to learn more!

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