How a supplemental needs trust helps a permanently disabled heir

How a supplemental needs trust helps a permanently disabled heir

On Behalf of | Feb 16, 2022 | Estate Planning & Probate |

If you’re responsible for a child, grandchild or other loved one with a physical or cognitive disability, their well-being after you’re gone is a top priority as you develop your estate plan. You want to ensure that you leave them the resources that they will need to live comfortably and be well cared for throughout the rest of their life.

Doing that the right way, however, is crucial. If you don’t, you could end up disqualifying them from getting government and other benefits that are available to help them. Most public benefits, such as Supplemental Security Income (SSI) and Medicaid health insurance are “means-tested.” That means they’re only available to people who have no or minimal other sources of income and monetary resources.

If you leave money or other assets directly to an heir who is receiving these benefits – even if you designate someone to handle their finances- you’ll likely need to set up a special needs trust. These are sometimes called supplemental needs trusts (SNT).

Types of SNT trusts

An SNT can be set up as a first-party trust or a third-party trust. If you put your own assets in it for your loved one, it’s a third-party trust. This is the type that’s typically set up for a loved one by someone doing their estate planning.

A first-party trust is generally set up if the disabled person had considerable assets when they became disabled or received money from a court award or settlement after a car crash or other permanently disabling incident for which someone was held liable. These trusts also allow people to receive public benefits while they’re alive. However, they must be repaid to the entities that provided them when the recipient dies.

If you set up a first-party trust for someone, the assets in it don’t count when their income and resources are considered by those providing benefits. Further, no money has to be reimbursed when the recipient dies.

Planning for a loved one who receives public benefits due to their disability is crucial if you want to ensure that they’ll have more than the bare minimum that public benefits can provide for the rest of their lives and that they can have access to the best care, treatment and living conditions. Having experienced guidance is key to creating an SNT that will work as you intend it to.