While the majority of the clients we see love their children equally and wish to treat them equally when they die, there are circumstances where this is not a good idea. One of those circumstances is where a child has “issues”. Issues, in this context, usually mean that he or she has a developmental disability that may last for their lifetime and now or later they may need government assistance. Issues could also mean that he or she has an alcohol or drug dependency and also may need government assistance, or worse yet, may use their inheritance to further their addiction with a terrible ending.
Although it may seem like a good idea, I strongly discourage people from establishing custodial accounts or leaving cash or other assets outright to heirs with disabilities, if they are or will receive benefits from the State. The distribution of assets outright may disqualify the beneficiary from government assistance, which is means-based.
When the assets of an individual with special needs exceed the governmental financial resource limits, the individual may be disqualified from both Supplemental Security Income (SSI) and Medicaid.
A more appropriate way to pass an inheritance to a special needs beneficiary is to utilize a Supplemental Needs Trust, also known as a Special Needs Trust. Supplemental Needs Trusts can be either self-settled Trusts, or third-party Trusts. A self-settled Trust is a Trust set up with the disabled persons own assets. The disabled individual is the Grantor and the beneficiary. A third-party Trust is created by one person (the Grantor) for the benefit of another, so long as the Grantor is not legally responsible for providing support for the disabled individual.
A Supplemental Needs Trust containing certain provisions may be established to administer and distribute Trust assets to a beneficiary with special needs without otherwise disqualifying them from governmental benefits. If drafted properly, the assets in the Trust are not counted for the purpose of determining eligibility for governmental benefits.
A properly drafted self-settled Supplemental Needs Trust will require the Trust to pay back the government after the death of the special needs individual for governmental benefits provided to the individual. If the assets are depleted then they do not need to be reimbursed. Supplemental Needs Trusts should be drafted with care.
The instrument should not direct the Trustee to make disbursements for a disabled person’s heath, maintenance or support as this will cause the Trust assets to be includable in determining eligibility for governmental benefits. One way to accomplish this goal is to give the Trustee absolute discretion on disbursements. When distributions are up to the Trustee’s sole and absolute discretion, the assets in the Trust are not counted when calculating eligibility for governmental benefits.
Supplemental Needs Trusts can be a valuable tool in planning for disabled individuals. The process requires consideration of many issues and should be approached with care by a qualified legal professional.
George P. Guertin, Esq.
Guertin and Guertin, LLC
North Haven, Connecticut