What is Special Needs Law?
Special needs law encompasses a range of services geared towards assisting individuals with disabilities, healthcare challenges, or concerns with respect to management of their daily lives or finances. The legal solution to these challenges often revolves around qualifying the individual for public benefits (e.g, SSI, SSDI, Medicaid) while utilizing a special needs trust (e.g., a D4A “first party trust,” a third party trust, or a pooled trust) to allow the individual to qualify for public benefits while protecting additional funds. , Special needs law also encompasses other types of services, such as establishing an ABLE account, executing proper advance directives, and guardianships.
Often, parents or grandparents with special needs family members will want to ensure that inheritances left to those family members will be protected while still allowing the special needs individual to qualify for public benefits. This overlap between estate planning and special needs law is a critical component to ensuring that the special needs individual is protected and the estate plan established for their benefits is carried out most effectively without harming the beneficiary.
Special needs Trusts
Special needs trusts (sometimes called “supplements needs trusts” or “SNTs”) are a type of trust that allows the beneficiary to continue receiving public benefits, such as SSI or Medicaid, while also benefiting from the funds held by the trust. SNTs may be established in a number of ways, and that affects how the funds may be used and what happens to the funds upon the beneficiary’s death (or if they are no longer in need of public benefits). Common types of special needs trusts include:
“D4A” trusts - these are called “first party” trusts because they are funded with the beneficiary’s money (and sometimes settlement proceeds or inheritances due the beneficiary). Upon the beneficiary’s death any funds remaining in the trust must first be used to pay back any Medicaid lien.
“Third party” trusts, which are funded with money from someone other than the beneficiary, typically a parent, grandparent, or other relative. These trusts, if drafted properly, are not counted as resources to the beneficiary and do not incur a “Medicaid payback” upon the beneficiary’s passing.
D4C “pooled trusts” allow funds from a number of different beneficiaries to be combined into one trust, thus allowing the trustee to earn a greater rate of return with trust assets than could be accomplished individually. Funds placed into a pooled trust do not impose a Medicaid or SSI transfer penalty and may be used for the beneficiary’s “supplemental needs.” Pooled trusts can be a perfect solution when establishing a D4A trust is impractical, although any funds remaining in the pooled trust upon the beneficiary’s death must still be used to pay back any Medicaid lien.
Each of these trusts have appropriate uses, and every beneficiary’s situation is unique. An experienced special needs attorney can assist with determining which type of trust will best suit the beneficiary’s needs.
ABLE Accounts are a tax-advantage savings account for individuals who have a significant disability that began before the age of 26. ABLE accounts allow eligible individuals to build savings and spend those funds on a wide range of expenses while maintaining their eligibility for public benefits (such as SSI and Medicaid). A tremendous benefit of ABLE accounts, compared to special needs trusts, is that disabled individuals may have direct access to the account funds, allowing them to have greater control over the funds available for their benefit. Funds in an ABLE account are also treated more favorably upon the death of the beneficiary, allowing some final expenses to be paid immediately and incur a reduced Medicaid lien against the remaining funds.
A guardianship is a court proceeding whereby a fully or partially-incapacitated person (the “ward”) has some or all of their rights removed and another person (the “guardian”) is appointed to handle some or all of their day-to-day affairs. In a special needs law context, guardianships are most often necessary when a minor with disabilities turns 18 — or when an adult special needs beneficiary may be unable to manage their own affairs — but they are unable to execute advance directives (durable powers of attorney, health-care surrogate designations), which can avoid the need for a guardianship.
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