Q. What is a Special Needs Plan and why do I need one?

A. A Special Needs Plan is needed when a family member or child is disabled and may need to qualify for government provided disability services. Special Needs Planning is not just drafting a Special Needs Trust – it also involves preparing all the family estate-planning instruments; advance directives; wills and trusts; letters of intent; Trustee instructions; transition planning; etc., that a disabled individual, or family of a disabled adult or child, will need to ensure either their own or their family member’s quality of life into the future while still preserving eligibility for much-needed government services.

While those instruments provide the basis for the Special Needs Plan, to be truly effective, the plan must address and resolve the important issues being faced by the disabled individual and their family / caregivers, such as, “if the parents pass away, or must go into nursing home care, what will happen to their disabled child?”; “how well does the disabled individual cope with change?”; “Who will step in to care for the disabled child / adult?”

All these questions and many more are answered by comprehensive special needs plans, such as those that are developed by Carol Johnson Law Firm, P.A., on behalf of the parents / caregivers and / or the disabled individual. All special needs planning is specifically designed for the individual client and is primarily focused on maintaining the future well-being and quality of life for the disabled individual when their current living situation inevitably changes.

Proper planning for the future needs of a disabled individual requires an in-depth knowledge and fundamental understanding of ever-changing federal and state laws that define how and when a person is eligible for government disability benefits and the legal instruments (special needs trusts, ABLE accounts) that, properly drafted, are exempt from being considered, by the Social Security Administration (SSA), as an income / asset resource. These exempt trusts allow individuals to qualify for government means-tested programs so long as they are drafted and administered in strict accordance with the federal and state rules that define them.

There are three main trusts that have been defined as “exempt” by the SSA, including two defined within the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93). These two OBRA trusts are the “self-settled Trust” and the “Pooled Trust”, a third type of trust is a “Supplemental Needs Trust” also frequently called a “third-party Trust” because it is created by a third-party for the benefit of the disabled individual. Case law has shown that Trusts which fail to meet all specific requirements, as defined by the SSA, are deemed to be resources available to the disabled individual, thus making the disabled individual ineligible for the benefits on which they rely. A description of these three main exempt trusts follows;

• Self‐settled Trust – so called because it contains the disabled individuals own money. Where the individual has received a settlement, inheritance or other asset bounty, this trust allows that individual to still qualify for benefits that would otherwise be unavailable. There are very specific requirements for the creation of this trust and it must include a Medicaid-payback provision.  This is codified in 42 U.S.C. 1396p(d)(4)(A).  Recent changes as a result of the Special Needs Trust Fairness Act of December 16, 2016, now allow greater flexibility in who can establish this trust.
• Pooled Trust  – this is a trust established and administered by a non-profit organization and is authorized by the SSA (42 U.S.C. § 1396p(d)(4)(C)). Trust funds are pooled together for investment purposes, with each individual account-holder having access to only their portion of the pool. Every state defines how the funds remaining in an individual’s account are to be distributed upon the individual’s death.
• Third‐party Trust – this is a supplemental needs trust that is created by third-party (usually a parent or grandparent) for the benefit of a disabled individual or family member.  The trust is wholly funded by the third-party and contains none of the assets belonging to the disabled individual beneficiary. By planning ahead, parents and grandparents can establish this Trust for a disabled family member and know that their gift or devise will not jeopardize the disabled individual’s benefits.  Trust distributions can be made for the supplemental needs and quality of life of the Beneficiary, while still maintaining eligibility for government services. And, there is no required Medicaid payback provision.

It is worth noting that even within the above-described trusts there are variations of them that can be used and additional types of trusts, such as a Qualified Income Trust and ABLE accounts that are available for special needs persons who prefer to, and can, continue to work while maintaining their Medicaid long-term care eligibility. An in-depth analysis of all available trust instruments is not the focus of this article, but can be discussed in greater depth during a personal consultation.