BY MARY E. VANDENACK
Do you have a disabled beneficiary? A disabled beneficiary raises special issue in designing an estate plan. In addition to financial dependency, the disabled beneficiary is often dependent on parents or other family in other ways that should be considered in estate planning.
In developing an estate plan that includes a disabled beneficiary, give special consideration to the human resources available to your beneficiary. Consider immediate and extended family, friends, advisors, doctors, ministers, counselors, and support agencies. As part of the planning process, consider what the beneficiary will need and how it can be obtained.
From a legal perspective, if the disabled beneficiary is on SSI or Medicaid, an inheritance will interrupt the beneficiary’s receipt of such benefits. An inheriting beneficiary will be required to spend all of his or her inheritance before being eligible for benefits again. The dilemma created by this is that the beneficiary may be able to maintain a reasonable standard of living while inherited funds are available. The beneficiary will thereafter be required to live only on the government befits, which could forced the beneficiary to live at poverty level.
There is a legal tool that allows for middle ground. Special needs trusts are trusts that are established pursuant to government guidelines as to the amount and type of benefits that may be provided to a disabled beneficiary without disqualifying his or her receipt of benefits. The trust is considered a “supplemental” trust whereby supplementary benefits may be provided to the disabled beneficiary.
There are different types of special needs trusts. Regardless of the specific type of trust and the timing, the trustee of the special needs trust will be able to provide the beneficiary things that might not be available via government benefits alone. The trust can pay for an advocate to ensure the beneficiary gets services he or she needs. The trust can pay for social events, sporting goods and vacations. The trust can pay for medical care or treatments that are not covered by Medicaid. The trust can pay for a good legal defense in the event that is required. A supplemental trust may also buy a home for you beneficiary to live in.
Even if you do not presently have a disabled beneficiary, the possibility of a beneficiary becoming disabled should be considered in your estate planning. If you have an estate plan that holds assets in trust for your beneficiaries over a period of years, it is always possible that a beneficiary could become disabled prior to full distribution to such beneficiary. In such event, the trustee should have the discretion to establish a special needs trust with such beneficiary’s inheritance.
Providing for special needs beneficiary requires careful consideration and specialized expertise on the part of the planners. An incorrectly drafted supplemental needs trust can easily be invaded by governmental benefit sources and be invalidated if the correct requirements are not met by the trust. Use advisors with specialized experience that the area requires to ensure the long-term protection of your disabled beneficiary.
metroMAGAZINE, October 2008