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Special Needs Planning

Special Needs Trust Attorneys Serving Western Pennsylvania

If you have a loved one with special needs, creating a trust made specifically for your loved one is one of the most important things you can do. Contact the experienced Pennsylvania special needs trust attorneys at Heritage Elder Law & Estate Planning, LLC to learn more about special needs trusts and how we can help you properly prepare for your loved one’s future.

First-Party Special Needs Trust

A first-party special needs trust is a planning tool that allows individuals with disabilities to retain not only their government benefits but also their funds while not going over resource limits, allowing the best of both worlds when it comes to the long-term sustainability and support of persons with physical or intellectual disabilities. Normally the problem arises when mom and dad want to leave money to a child with a disability and do so in their Last Will and Testament or through an outright gift. Assets are then transferred and distributed outright with no strings attached to a person with disabilities. Therefore, what often happens is, if the child is receiving government benefits, he or she becomes over resourced because they are holding on to, have control of and have direct access to more resources than are allowed under the programs providing their benefits, whether it be for housing or other support. The danger arises because the child with a disability will remain over-resourced until their personal assets that were just recently gifted to them are expended.

Once those assets have been expended and they are below the resource limit, then the child can reapply for the benefit. There is often a delay in the process and then financial hardship occurs. The real tragedy is that the gifted assets desired to provide for the long-term sustainability of a loved one are consumed rapidly, and once those assets are gone they have provided very little long-term benefit. The child with a disability is then back on government resources, in either the same or, arguably, worse shape than they were prior to receiving the gift.

A first-party special needs trust denotes that when a first person receives finances, that person can place those funds into a trust (sometimes referred to as a Sole Benefit Trust) where there can be $10,000 or even $1 million dedicated to the sole purpose of providing for the disabled person for the remainder of his or her life. However, there is a catch: the person receiving the funds cannot be directly responsible for making distributions.

In a first-party special needs trust, the assets are used for supplemental needs, not for direct-support needs. The language commonly calls for the funds to supplement any government benefits–not replace or supplant them. For the remainder of the disabled person’s life, a third-party individual will control the checkbook and use the funds for any supplemental needs, such as transportation, recreation or education. However, the funds are not required to be used for support for health maintenance or primary educational purposes.

The downside to a first-party special needs trust is that any funds remaining in the trust at the time the beneficiary passes away are returned to the government. This is often referred to as a Payback Trust under Statute d4a. The first-party special needs trust is a great tool, but there are better planning options. Please look at pooled trust and/or the third-party special needs trusts as they may be a better fit for your situation, especially if the funds have yet to be transferred to the disabled beneficiary.

Third-Party Special Needs Trust

A third-party special needs trust is for situations where a third-party individual is healthy and looking to use his or her assets to benefit a person with a disability for the remainder of his or her life. A very common scenario is when a parent or grandparent wants to leave money for a person with a disability but is somewhat aware that by leaving assets outright to this person could affect his or her benefits. In this case, a third-party trust is a better option than a first-party trust.

In a third-party trust, an individual can set aside assets for anybody else to benefit from them for the remainder of his or her life and a third party will again hold on to the assets and make decisions regarding when and how to make distributions. Just like with the first-party trust, a third-party supplemental needs trust is there to supplement but not supplant or replace basic needs such as housing and medical and expenses. However, it is used to provide for supplemental expenses such as transportation, recreation, and educational activities that are beyond the realm of primary education.

Again, there can be $10,000 or $10 million in a third-party supplemental needs trust, and it will not affect government benefits the individual with a disability might be receiving. The added benefit is that upon the death of the disabled beneficiary, the person establishing the third-party trust decides where the remaining funds can go. In a typical scenario, we leave inheritance and, if possible, plan ahead so it won’t be lost and disrupt benefits for a disabled beneficiary. We also want to make sure that if all of the funds are not used at the time of the disabled beneficiary’s passing, the remaining assets go to other named beneficiaries, such as other children or a charity that might be named after the passing of the disabled beneficiary.

Third-party special needs trusts are a very powerful tool, however, they are best utilized if set up well in advance of the passing of the donor of the funds. Please look to our other sections to see if other special needs options might be more viable. These trusts are especially important when leaving significant assets to a beneficiary with a disability. What counts as a significant asset varies from family to family. However, if there are not significant assets or assets that do not warrant the continued oversight of a trusted family member, sometimes a pooled trust is a more viable option. Pooled trusts offer the benefit of streamlined management of the funds and less family involvement over a longer period of time. Please look to a pooled trust if this may fit your scenario.

Pooled Special Needs Trust

A pooled special needs trust is a viable option for family members or individuals who want to leave assets to an individual with a disability but not disrupt any public benefits they might be receiving. However, this tool is often used for assets that are not significant in the eyes of the family. In a pooled special needs trust, assets are distributed to a collective manager of funds who will use all of the funds placed into the trust only for the sole benefit of the recipient, as similarly described for the first-party and third-party special needs trusts.

For a pooled trust, a third-party individual is tasked with managing the assets, investing them, and making distributions for things such as transportation, recreational, and/or supplemental needs that may arise in the life of the beneficiary. However, unlike the first-party and third-party trusts, when the beneficiary passes away and there are remaining assets in the pooled trust, these assets remain in the pooled trust for the benefit of the other beneficiaries that comprise the pool. This could be one other person or, more often, hundreds of other beneficiaries that would be associated with the pool.

It is not common that attorneys set up pooled special needs trusts themselves; there are dedicated companies. At Heritage, we have the ability to work with multiple pooled special needs trust firms, however, one that we have had good success with is ACHIEVA Family Trust. To secure funds and walk through their process, the company would be able to describe their procedures and costs directly one-on-one. A pooled special needs trust is often one of multiple strategies that are utilized in a sequence of planning. Again, please refer to our other special needs trust sections if a pooled trust does not sound as if it would be appropriate for your family’s situation.

Hybrid Special Needs Trust

A hybrid special needs trust is a variation of the previous special needs trusts described above. In a hybrid special needs trust, we have to physically modify the trust to conform with the situation that is not often encountered by practitioners. In this situation, we would have a third party looking to set aside funds for an individual with a disability. However, the party that is designating the funds for the person with a disability is also either wanting to receive benefits or is already receiving special needs benefits.

It is a situation where the person creating the trust is also the person receiving the funds in the trust and will be receiving government benefits for their support for the remainder of their lives. While the government does authorize us to set aside funds–even significant amounts of funds–for individuals with disabilities, creating a trust and distributing assets into a third-party situation can sometimes create penalty issues for the person distributing the funds for the benefit for their own support and/or medical needs in the future.

Therefore, we can still achieve Medicaid eligibility for both the grantor and the grantee who is creating the trust and receiving the benefit of the trust, though there has to be modified provisions that resemble the payback provisions in the first-party trust described on this page.

Although there is more to the planning aspect it is fairly straightforward; you have a beneficiary with a disability and the person who wishes to support another beneficiary who is also disabled or receiving government benefits. This is where the hybrid trust works miracles. The hybrid trust gets Medicaid eligibility for both and sets aside assets for the benefit of a person with a disability over their lifetime, whether that be liquid assets or real estate. Upon the death of the person granting the trust, we have to look back to see if there were any government benefits paid to that person in order to satisfy the payback provisions to make the whole scenario work.

Though the hybrid supplemental needs trust is a fairly rare planning tool, for the right scenario and the right family it works wonders to maintain eligibility for both the grantor and the recipient of the funds placed into the trust.

Contact Our Pennsylvania Special Needs Planning Attorneys

No matter your situation, if you have a loved one with special needs, it is in your best interests to reach out to an experienced Butler County estate planning attorney who can help you create an estate planning trust that can help your loved one live a happy, productive life. We are here to give you and your loved one the peace of mind you deserve. Contact our firm today so we can get started.

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