Planning for the Disabled Child – The Supplemental Needs Trust
Care for a disabled child after their parents have died is a significant concern for those parents. Often the disabled child is a recipient of public assistance and the assistance is desperately needed for medical care, group homes and/or other major costs of care. In order to keep the public assistance (or obtain it in the first place) those disabled children (and their parents) need to meet financial eligibility requirements. These requirements usually mean a very restricted amount of “available resources” and/or income to the child. For our discussion, that means the disabled child cannot receive an outright inheritance because it would render them ineligible or cause them to lose eligibility for the benefits they rely on.
If a disabled child were to receive significant funds and lose the benefits they have been receiving, they would need to spend all of those assets on their own care or repay some or all the benefits to the public assistance provider. In either case, the routine of care could be compromised as the child may need to reapply for benefits and temporarily lose necessary help. Of, course, this loss of benefits can be prevented with proper planning.
In order to avoid this temporary but possibly catastrophic event, parents (or grandparents, etc, but we’ll talk parents) may wish to consider a Supplemental Needs Trust or “SNT” (often incorrectly called a “Special Needs Trust”). The SNT can be made and used while the parent is alive (called “inter vivos”) or, more frequently, under a Will (called “testamentary”). With the SNT the trustee/caregiver can provide the disabled child with the extras public assistance cannot. When the parents both pass away, the disabled child’s inheritance passes to the SNT, not the child. In the SNT those resources are not countable for public assistance calculations. The child keeps the public assistance, the trustee can provide for the extras like a TV in the room at the group home and an electric wheel chair.
An SNT has limitations as well. First, it must supplement not supplant the public assistance. That means don’t pay for food, shelter or medical care that the public assistance received will provide. (There is some very limited ability to pay for “shelter” but be careful and talk to the benefit provider first.) If the trustee decided to pay for any of those things, they must take care to ensure that they can continue that payment for the long term and that it is better than what the public assistance can provide.
A second limitation is on the beneficiary’s power to use the trust. The beneficiary can’t have any! That means only the trustee can make decisions and the beneficiary cannot direct or actually make spending decisions from the trust.
Third, the SNT generally cannot be made by the beneficiary or avoid a parent’s obligation to support the child. Both of these result in what is called a “pay-back” requirement. The trust may be respected for eligibility of benefits but after the beneficiary’s death the trust assets must be used to repay the benefits received.
Finally, the trust must make it clear that the grantor’s intent was to create a Supplemental Needs Trust.
As always, there are more limitations and legal issues than can be covered in this short article. Please check with your own attorney to learn more about SNT’s if you have disabled children. SNT’s may also be useful for other disabled persons as well. Your counsel can help with that too.