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Special Needs Trusts: Estate Planning for a Disabled Family Member

Posted by Dan A. Moore | Apr 08, 2016 | 0 Comments

Are you thinking about leaving assets to a disabled loved one?  Stop!  A gift of cash or property to a disabled person may disqualify them receiving their Supplemental Security Income (SSI) or Medicaid.  You need to plan carefully so that the money and benefits that they are receiving are not terminated.

A Special Needs Trust may be one solution.  This kind of trust is formed on behalf of an elderly or disabled beneficiary to provide benefits beyond those that they already receive through government benefits like SSI or Medicaid.

Depending on specific requirements set by each state, a Special Needs Trust can only be used for items and services beyond what is already being supplied by governmental assistance programs, meaning essentials such as housing and food items are never covered.  Instead, Special Needs Trust may be used for:

  • Special therapies not covered by government benefits
  • Remodeling a kitchen or bath to accommodate special needs
  • Purchasing a van with a custom lift
  • Personal items
  • Visits to relatives or companions

Forming a special needs trust can be done with the disabled person's own money, sometimes from a personal injury claim, or from a third party's assets.  These two funding sources should never be blended in a single trust.

Self-Settled Trust.  A disabled individual under the age of 65 can use his or her own money and property to form this trust.  This option is best for a disabled person with too many assets to qualify for Medicaid.

Third Party Trust.  This trust is used by a parent or relative as part of their estate planning, funded by practically any type of asset so long as used for the allowable purposes under the law of the state.

In either case you will designate a trustee over the assets who will be in charge of the property.  The beneficiary will never have direct access to the assets but will always have access to its life improving purposes.

Some people ask whether it is acceptable to leave the assets directly to a family member to help the disabled family member.  This option carries several risks, including assurance that the assets will be used as you hope and future creditor issues that may wipe out the funds.

If you have any questions about Special Needs Trusts in particular or estate and gift planning in general, please contact us.

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About the Author

Dan A. Moore

EDUCATION Drake University, B.A., 1974 Drake University Law School, J.D., 1977 ASSOCIATIONS The Iowa State Bar AssociationState Bar of South DakotaWoodbury County Bar Association Dan A. Moore joined the Firm in 1977 as an associate, becoming a partner in 1982. Dan's practice focuses on, but is...

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