Special Needs Planning


One question we will always ask prospective clients: Do you have special needs beneficiaries, either for financial, medical or educational issues?

Not surprisingly, most families say yes.

When engaging in estate planning, you must protect these beneficiaries, especially if they are currently on or could go on public benefits such as SSI or Medicaid.

An individual is not eligible for Medicaid until his or her total assets are approximately less than $2,000. Yes, TWO THOUSAND DOLLARS. Almost nothing!

So what if, in your estate plan, you leave a beneficiary on Medicaid or going on Medicaid a sizeable inheritance outright? The answer is one way or another, that inheritance will likely get into the hands of the government.

A special needs trust (SNT) is a type of trust that can be used to avoid this from happening, particularly if you are leaving an inheritance for someone you know is special needs and on public benefits. We call these types of SNT’s Third Party Special Needs Trusts, because the funds from that trust are yours, managed by a trustee of your choice, and NEVER touch the hands of the special needs beneficiary. If we do our job correctly, the government won’t be able to touch those funds either.

There are also First Party SNT’s that a special needs beneficiary can establish with his or her own assets while staying on Medicaid. But any unspent assets from these trusts are subject to estate recovery, meaning the government can recover funds it used to pay for that beneficiary’s benefits. As you can see, it is more advantageous for your family to create a Third Party SNT while you can, to protect the beneficiary and also contingent beneficiaries, such as grandkids, etc.

Here are a few key ideas I’ve learned in doing special needs planning:

  • Get it right the first time!
  • Have a plan for where your assets will go and ensure that the beneficiary does NOT receive anything outright! It happens more than you think
  • Make sure the attorney knows the special needs beneficiary’s every issue, big and small, as well as the diagnosis, etc.
  • An attorney CANNOT be successful setting up an SNT without working together with a financial advisor and sometimes a CPA.