Leaving an inheritance can be a blessing, but it can also cause a special needs beneficiary to lose critically needed governmental benefits.
Take the example of John and Mary, who have three children: Kathy, Beth and Sally. Because Sally has special needs, John and Mary are concerned that they will disqualify Sally from receiving public benefits if they leave her an inheritance. One solution would be to disinherit Sally and hope her siblings will take care of her. But what if Kathy and Beth decide not to take care of Sally, or what if, for reasons beyond their control, they simply can't take of her? These concerns can be overcome by way of a Special Needs Trust (SNT).
A SNT can be structured so that a child receiving governmental benefits such as Medicaid or Social Security Income (SSI) will be able to benefit from the trust without being disqualified from receiving benefits. An SNT can take the form of a living trust or a testamentary trust (one that is created following the death of its creator).
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There are strict income and asset limits that are imposed on recipients of governmental benefits. Those benefits can be a godsend, but even in the best of circumstances, they probably will not provide for all of the recipient's needs. A properly structured SNT can provide for the "extras" that Medicaid and SSI will not provide, such as travel, recreation, tuition, electronic equipment and household furnishings. Yet the SNT will not be considered an asset of the beneficiary for purposes of qualifying for governmental benefits.
Well-intentioned relatives and friends need to keep this in mind when they are setting up their estate plans. If Aunty leaves a lump sum of cash to her special needs niece, this could disqualify the niece from Medicaid and SSI. If the niece receives an unexpected windfall, whether by way of inheritance or personal injury settlement, she can have a special needs trust created for her, but a great deal of time and expense could be saved by a little pre-planning by the family.
If you have a loved one who has special needs, talk with your trusted advisors about how to put a plan in place that will assure that the loved one can benefit from your generosity without losing the safety net that our government provides.
You can also log on to www.est8planning.com/Hawaiispecialneeds.php for a helpful overview of special needs planning.
Scott A. Makuakane and Roya J. Deyhim are estate planning attorneys with the law firm of Est8Planning Counsel LLLC. Contact Est8Planning Counsel LLLC at 891-8881 or www.est8planning.com.