Reed: Special needs trusts to the rescue

Sandra W. Reed
Sandra Reed

Clifton and Jane have three daughters. The middle child is disabled due to severe autism and relies upon Supplemental Social Security and Medicaid. They would prefer to leave their estate to this child, who will need it more than her sisters. Instead, they plan to leave her out of their will to prevent her from being disqualified from the means-tested benefits she receives. However, they worry that, following their deaths her benefits will be reduced or become insufficient. Can they protect her without depriving her of the much-needed governmental benefits?

Special needs trust can benefit disabled child

Clifton and Jane can create a testamentary special needs trust in their wills making their disabled child a beneficiary. Even if she were incapable of handling her own finances, which she isn’t, they must name someone else — perhaps one of the other daughters — as trustee. This prevents the trust assets from being a countable resource that would disqualify her from receipt of SSI and Medicaid.

The trust should be carefully drafted to provide flexibility sufficient to meet their daughter’s needs while avoiding being counted as an asset that disqualifies benefits. The daughter cannot have any right to demand or compel distributions to herself. The trustee must have sole discretion over what distributions are made.

Special needs trust not limited to benefit of disabled child

The special needs trust can benefit their other daughters as well. The trust should include language that provides for the support of the disabled daughter as liberally as possible without disqualifying her from receipt of any governmental benefits.

Savings clause should be included; pay-back provision should not be

As a precaution, the special needs trust should include a “savings clause” limiting or entirely nullifying the trustee’s ability to disqualify the disabled daughter from receipt of governmental benefits.

A “pay-back” provision in favor of the governmental entity providing benefits should not be included in the trust. These provisions are required for trusts set up by the disabled individual funded with their own assets. They are not required — and should not be used — with a trust funded by a third party.

Sandra W. Reed practices Elder Law in Somervell County, handling probating of estates, drafting of wills, trusts, powers of attorney and deeds as well as estate and Medicaid planning.  She lives on beautiful Chalk Mountain and can be reached at (254) 797-00211; (817) 946-2809 or at sreed@kbzlaw.com.