Supplemental Needs Trust Planning
If you have a family member who is disabled or who faces special challenges, you know that solutions to their needs often require an individual touch. When addressing your estate planning needs, consider using a Supplemental Needs Trust to allocate some of your resources to alleviate the unique needs or burdens of your loved one with special needs.
A threshold question for parents of children with special needs or family members of disabled individuals is how to leave funds to help these individuals without threatening the support they may receive from the Federal or State government or otherwise creating a burden despite good intentions. Direct transfers to individuals who are disabled or considered incompetent for financial purposes may create a need for a guardianship or conservatorship. If a minor or incompetent donee receives significant assets but is not able to manage his or her finances, his or her caregiver will likely need to petition the courts to establish a custodial fiduciary relationship. Essentially, the caregiver needs the court’s permission to open an account for the benefit of the incompetent person. The caregiver acts as a manager of the account for the incompetent person’s benefit, and he or she must prepare routine accountings for court approval; the assets may be restricted for use for particular purposes. This process can be expensive and may take months. Additionally, the assets may still disqualify the beneficiary from receiving government benefits.
Instead of making outright bequests or gifts to a disabled or incompetent individual, a supplemental needs trust can empower a manager or caregiver to improve the quality of life of the beneficiary without threatening their existing (or potential future) benefits and without the burden of a court process.
Supplemental Needs Trusts are a form of third party planning; this means that the funds for the trust come from a third party, not the person who needs the benefit of the assets. The donor or provider of the assets sets up the Supplemental Needs Trust for the benefit of the individual with special needs. First party planning is a separate matter outside the scope of this article.
Supplemental Needs Trusts are intended to do just that: supplement the other assets available to the individual. When assets are left directly to the individual or are put into an instrument with provisions that provide for the trustee to use the assets for the benefit of the individual in ways that overlap with purposes of government funds, the government may reduce the amount of support provided to the individual on the basis that his or her needs are being met.
Many standard estate planning vehicles include language where the trustee is directed to provide for the health, education, maintenance, or support of the beneficiary. However, Supplemental Needs Trusts should avoid use of this language so that there is no question that these funds are not for overlapping purposes. Instead, the trustee should be given discretion for how to use the funds. The grantor’s intent should be clear: that the trust assets are to supplement and not supplant other benefits.
By adding supplemental needs planning to your legacy or by creating a current Supplemental Needs Trust, you can greatly improve the quality of life of an individual with special needs. This planning can be delicate and should take the individual’s existing and potential future benefits into account. Plan for the potential elimination of additional benefits caused by well-intentioned but insufficiently focused planning. When combined with the right trustee and the sound advice of a team of professionals, a Supplemental Needs Trust can be the most impactful piece of your estate plan. Contact our office today to further discuss how best to achieve your supplemental needs planning goals.
About the Author
S. Blaydes Moore, JD
Associate Attorney