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Special Needs Planning – What is it?
Individuals with physical or mental disabilities typically have special needs. Special needs planning is a legal process to ensure loved ones with disabilities have the resources they need in the future. Disabilities may be diagnosed at birth, or they may be caused by illness or injury at any age. Special needs planning can begin at any point in life, with the goal of providing for the needs of a physically or mentally disabled family member.
What Are the Benefits of Special Needs Planning?
Comprehensive estate planning is essential in all types of family circumstances. For families with special-needs children, ensuring the child is protected when the parents pass away is even more important. Advance planning regarding the special needs of a child has several vital benefits. It enables you to:
- Name a suitable guardian for your child
- Plan for a transition from school to potential employment
- Protect crucial public benefits available to individuals with disabilities
- Supplement the financial needs of a loved one with a disability
- Ensure the best quality of life and the most freedom possible
- Provide financial stability
What Is Involved in Special Needs Planning?
The focus of special needs planning is to establish a plan that allows you to transfer assets to a disabled family member for use during their lifetime without jeopardizing their access to the available government benefits such as SSI and Medicaid. Special Needs Trust and an ABLE account can be established to protect a loved one’s access to important government benefits.
Disabled individuals may be eligible for food and housing assistance, Medicaid, SSI, and other needs-based government benefits. To qualify for these benefits, they must meet maximum limits on assets and resources and remain under those limits to continue receiving benefits.
For example, the Social Security Administration reports that SSI is generally for individuals who earn no more than $1,971 a month (although the income limit increases when parents apply for children). The Pennsylvania Medicaid Program specifies maximum annual household gross income levels for households of various sizes. Currently, for a household of four, the annual income limit is $39,900.
Special Needs Trusts and ABLE accounts make it possible for the beneficiaries to retain some private funds without putting eligibility for SSI, Medicaid, and other benefits at risk.
What Is a Special Needs Trust?
A Special Needs Trust can be established to pay for the needs of a disabled loved one that are not covered by public benefits programs, including SSI or Medicaid. When properly drafted, a Special Needs Trust can enable parents or other family members to provide financial support without jeopardizing access to government benefits.
A trust, to qualify under state and federal laws, must contain specific trust provisions. For example, it must include specific language generally prohibiting the distribution of funds directly to the beneficiary. It allows for funds to be paid out for goods or services for the beneficiary without replacing the goods and services provided by government benefits. An experienced estate planning attorney must draft a Special Needs Trust.
What Is the Difference Between a First Party and a Third Party Special Needs Trust?
Special Needs Trusts may be first party (funded by the disabled beneficiary’s assets) or third party (funded by another person’s assets).
- A first party Special Needs Trust is typically used to preserve personal injury proceeds or the inheritance of a disabled beneficiary. This type of trust may only be established by a disabled beneficiary under the age of 65. It must be irrevocable and for the sole benefit of the disabled beneficiary. Upon the beneficiary’s death, the remaining trust assets must first be used to reimburse Medicaid.
- A third party Special Needs Trust is fully funded by others and set up for the sole benefit of the disabled beneficiary. Parents of a disabled child may set up a third party Special Needs Trust that is funded either during the lifetime of the parents or upon their death. A third party Special Needs Trust may be created for a disabled beneficiary of any age. The remaining assets after the beneficiary’s death are not reimbursed to Medicaid but are distributed to other family members.
What Is an ABLE Account?
“ABLE” is an acronym for “Achieving a Better Life Experience.” An ABLE account is a tax-advantaged account for a disabled individual. Contributions may come from any source, but the disabled beneficiary is the owner of the account. For federal tax purposes, contributions to ABLE accounts are not tax deductible. In Pennsylvania, however, taxpayers may deduct the amount of their PA ABLE contributions up to $18,000 per year. Upon the death of an ABLE account holder, Medicaid could make a claim for reimbursement from the account’s remaining funds.
Eligibility for an ABLE account is limited to individuals whose disability began before they reached the age of 26. To be eligible, the disabled individual must be unable to perform work for pay or profit because of a mental or physical impairment that either: is expected to result in death; or has lasted for at least 12 months, as certified by a physician.
Why Choose Our Firm?
For strategic special needs planning, you need a legal team with experience and specialized legal knowledge. At Peak Legal Group, we have experience in all aspects of special needs planning. If a Special Needs Trust is appropriate for your situation, we can create a document that meets all legal requirements and help you implement the trust to best provide for your loved one’s needs. Contact us today at (610) 989-7064.
