Many documents that fall within the scope of estate planning are meant to be used during the life of the beneficiary. One example is a Special Needs Trust. If someone in your family has a physical or mental disability that will require long-term, if not lifetime, care, a Special Needs Trust can be set up for that person’s needs that other benefits will not pay for. The importance of the Trust is that assets in the Trust are NOT considered personal assets that would affect eligibility for other benefits such as Medicaid and Supplemental Security Income (SSI).
Because the benefits of a Special Needs Trust are so important to the beneficiary, the Trust must be drafted carefully to avoid being considered a countable asset for purposes of the beneficiary’s qualifications for other assistance. In reality, the government benefits are designed to provide for the beneficiary’s necessities. The funds in the Special Needs Trust are designed to allow a higher quality of life for the beneficiary. Even the most severely disabled person will have something that brings joy to his or her life such as watching cable television, having a massage, or taking a trip to the beach, which the government considers to be extravagances.
While most Special Needs Trusts are set up for the lifetime of the beneficiary because there is little or no hope for improvement or recovery, some beneficiaries may eventually recover to the point that they no longer need the assets to be held in trust for them. A treatment, or even cure, for what is now considered a lifelong condition may leave the beneficiary in a position to be released from long-term care. So if that occurs, should there be a provision in the Trust that terminates the Trust automatically and distributes the assets to the beneficiary?
Most of the time the answer is no. One reason is very practical: if the beneficiary has been disabled for some time requiring dependence on others to manage his or her affairs, financial and otherwise, he or she may not be capable of managing the assets of the Trust. Another reason is similar to why the Trust was created in the first place: once the assets are outside the protection of the Trust, the person will likely no longer be eligible for any government assistance should it be needed and, in some instances, the government agencies may ask for repayment of some of the benefits they have provided.
Because a Special Needs Trust must be drafted carefully to avoid many pitfalls and loopholes, it is critical to consult with an estate planning attorney with experience drafting these important documents.