Special Needs Trusts Can Help Those with Disabilities

One of the most overlooked communities are people who suffer from mental illnesses. According to the National Alliance on Mental Illness, studies show “20.6% of U.S. adults experienced mental illness in 2019 (51.5 million people). This represents 1 in 5 adults.” Often times, people are left wondering how a loved one experiencing mental illness will be cared for in their absence. Have you or anyone you know ever agonized over how a loved one might be cared for if you or the caregiver can no longer provide for their needs? Having a good estate plan is one of the most crucial tools that can help ensure that your loved ones are protected. It can be extremely important to people suffering from mental illnesses. A good estate plan should ensure that assets are protected, and in the case of a loved one who is experiencing a mental disorder, it would be especially useful to investigate a Special Needs Trust.

A Special Needs Trust is one of many available options in estate planning and may be a suitable tool to protect individuals with mental illnesses. A Special Needs Trust is a legal arrangement containing assets that are held and used on behalf of a person with a disability or special needs. A Special Needs Trust is different from the other trusts because the person who is providing the assets (a grantor) gives authority to another person (a trustee) to control how much of the assets are given to a person (a beneficiary) who has special needs. For instance, if you have a brother who suffers from a mental illness, you might be concerned with him receiving an inheritance as a beneficiary because he may not be able to properly care for himself. To address this concern, you can name a trustee to distribute the assets to your brother at the trustee’s discretion to ensure that his inheritance or government benefits (discussed further below) are not jeopardized.

If your loved one is applying for or receiving public benefits such as Supplemental Security income (SSI) and Medicaid, you should consider a Special Needs Trust.  This is important because the Social Security Administration considers money within a trust as a resource for the applicant, which is why they believe the applicant may no longer need the social security income. So, the question here is … will a Special Needs Trust affect these public benefits since it is considered a resource? The short answer is no! Thankfully, a Special Needs Trust is one of a few legal options available whose assets are not considered a direct resource of your loved one to be counted against them for public benefits. The reason is because the loved one does not have direct access to the Special Needs Trust. The person with direct access is the trustee, the person who was given the authority to distribute the assets to the beneficiary with special needs. If the special needs trust is designed properly, it should not compromise state benefits at all! Now, that should give you a measure of peace.

It is also important to highlight two types of Special Needs Trusts: self-settled (also referred to as the first party) and third-party. The main differences between a self-settled and third-party trust are: (1) who is creating the trust and (2) who is providing the assets. Although both trusts can and are generally created for the benefit of the beneficiary with special needs, it is important to note that other individuals besides the beneficiary can benefit from a third-party trust. Additionally, only the beneficiary, parents, grandparents, guardians, and/or a court decision can establish and continuously fund a self-settled trust. However, the assets establishing and continually funding the trust can only be those belonging to the beneficiary. Contrasting a self-settled trust, a third-party trust can be created and funded by anyone besides the beneficiary. Finally, self-settled trusts require a Medicaid payback, whereas third-party trusts do not.

Finally, a Special Needs Trust can be placed in a will as a testamentary trust. If a Special Needs Trust is placed in a will, the beneficiary cannot receive the assets until the grantor has passed away. A Special Needs Trust is probably more preferrable when not included in a will because the beneficiaries can receive assets from the trust and the trustee at the trustee’s discretion without delay, while the grantor is living or deceased. However, the decision on how to design your estate plan will vary depending upon your personal, family and financial circumstances.

Hopefully, this article provides some comfort to you that your loved ones can be protected in case of your incapacitation or in your absence. A Special Needs Trust is a valuable tool for individuals who have mental illnesses or other disabilities and can help minimize stress and future concern. If you have more questions about how Special Needs Trusts can help you, contact P.A. Lundy & Associates.  We are available to assist you with your estate planning goals and help you ensure that your assets and loved ones are protected.


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Paulette Lundy

Attorney Paulette Lundy is the Founder of P.A. Lundy & Associates, LLC, a law firm in Columbia, Maryland, Howard County. P.A. Lundy & Associates was established out of Paulette’s love, passion and life’s purpose to assist people to become better stewards of their resources through proper legacy development, planning, organizing and effective implementation. Paulette’s life is devoted to educating people about the pleasures of planning your legacy “Your Way” and securing your family’s peaceful future in your absence.

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