What Is a Trust?
While a parent (or supportive family member or friend) is alive, there isn’t a problem. The parent can pay expenses for their child. They can buy things that won’t be covered under SSI or Medicaid but are “quality of life” items. Examples might include recreational things like a television or books. They can also include health care services — like rehabilitation or physical therapy — that might not qualify under Medicaid but can make an enormous difference in a person’s quality of life.
How a Special Needs Trust Works
As a parent, you’re thinking ahead and wondering how your child will be cared for when you’ve passed on. If you leave your disabled child their inheritance, it will disqualify them from SSI and Medicaid.
You could leave the money in your will to one of your other children. You have confidence in their ability to manage money and know that they’ll do the right thing with the inheritance. But what if the other adult child goes through a divorce or faces some other challenge that puts all their assets on the table? The money you intended for your disabled child would be included in that.
A trust avoids that pitfall. Your will can be structured so that money flows immediately into the trust upon your passing — this is what’s called a testamentary trust. The trust is clearly designated to meet the ongoing financial needs of your disabled adult child. The trustee — the individual you designate to supervise the trust and its assets after your passing — will have a legal responsibility to follow the guidelines you establish for how the money can be spent.
A special needs trust can take on different types of structures and financing methods. Our attorneys will work to create the plan that’s best for you.
Another type of trust is called inter vivos. This is a trust that’s set up and funded while you are still alive. A trust properly structured can offer tax benefits, and you may find it advantageous to simply start moving the money you currently spend caring for your adult child straight into the trust. Of course, your child will still get the normal benefits that you’ve been paying for. It will just come from the trust.
This structure allows supportive family members and friends to help. Perhaps you’ve been asked what can be done and had to tell them there was nothing to do, lest your child lose their SSI and Medicaid. Now, anyone who wants to help can donate money to the trust. They can identify the trust as a beneficiary in their wills.
It’s possible that some very well-meaning family member decided to make your disabled adult child a beneficiary in their will. You don’t find out about it until after this family member has passed away. Now, you have a problem. Your child is inheriting this money, which will kick them off SSI and Medicaid. Is there anything to be done? The good news is yes, you and your special needs trusts lawyer can take action to protect your child’s benefits.
The mechanism in this case will be a payback trust. This is a trust that’s created with the assets of your adult child — in this case, the surprise inheritance. The payback trust protects your adult child’s assets for the remainder of their life. If, at the time of their passing, it is determined that they owe Medicaid or SSI some money, the payback can take place out of any money that is left.