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Special Needs Trust Planning

What will happen to your disabled loved one when their caregiver is no longer around?  What will happen to your disabled loved one’s benefits if they inherit anything of value over $2,000?

A Special Needs Trust is an important estate planning tool for any family that has a family member with a disability.  A properly drafted Special Needs Trust protects the assets and income of the disabled person, while allowing the person to access government benefits.   Specifically, the family needs to safeguard the disabled person’s eligibility for Social Security and Medicaid/Medicare benefits.  Without a properly drafted Special Needs Trust the disabled person could lose eligibility for these important benefits.  The trust is not a document that should be stored on the shelf and never reviewed.  As the disabled person ages, the Special Needs Trust needs to be reviewed and potentially modified.  Roybal-Mack & Cordova, P.C. has experience in drafting Special Needs Trusts and making sure that they remain updated during the beneficiary’s life.

There are three common types of trusts that Roybal-Mack & Cordova, P.C. will review with you to determine the trust to best fit your needs.   There are various rules associated with each trust that can be discussed in your trust consultation.

First Party TrustLea Mack Special Needs Trust

First party trusts are funded with the disabled person’s own assets.  These are also called payback trusts wherein Medicaid needs to be paid back for all funds that they paid on behalf of the beneficiary at the end of the trust.  If a disabled person inherits funds that are not safeguarded in a third party trust, this is a viable option to maintain the person eligibility for public benefits. These trusts can be used when there is a personal injury settlement or other types of inheritance that have not been safeguarded.

Third Party Trust

Lea Mack 2 Lea Mack Special Needs TrustThird party trusts that are funded with assets of someone other than the disabled person.  These are commonly created by the parents, grandparents or guardian of the disabled person with the third party’s assets.  The third party trust is an exceptional estate planning tool as there is no payback of Medicaid at the end of the trust. This trust is designed to supplement the needs of the disabled person that are not met with public benefits.

Pooled Trust

In New Mexico there are various pooled trust providers that manage trusts for disabled people.   Pooled trust can only be managed by charitable organizations.  The trusts are managed with a Master Trust Agreement that the disabled person enters into to manage their individual account.  The pooled trust usually has lower fees and the charity retains the funds at the end of the trust as opposed to the funds going to repay Medicaid.  It is important to review the pooled trust because some may not take vehicles or houses as assets to be managed for the disabled person.  Therefore, you may need to restructure assets to make the pooled trust a viable option.

Planning for Disabled Person in Stages

As you and your disabled person age, you will need to plan for the various stages in life.  Your Special Needs Trust should be reviewed on an annual basis to make sure that you remain eligible to access public benefits.   Every family with a disabled person should have a living plan than can provide for the needs of the disabled person throughout time. Having a plan in place is essential for the parent or guardian and the child.

Parents need to consider their own plan while planning for their child.  This includes financial planning, estate planning and considering life insurance to fund your child’s Special Needs Trust.  Families should consider preparing a Memorandum of Intent that outlines how you want your child cared for after your death.   The Memorandum is your opportunity to clearly express your goals for your child.

Planning for Child from Birth to Age 14

During this stage of life the parent’s assets are deemed to be the assets of the child for Social Security purposes.  If the parents do not qualify for need based Medicaid, there may be a State Medicaid Waiver Program available for your disabled child.  You may also qualify for a qualified plan through the Health Insurance Exchange.  A plan at this state includes planning for the parents to include a Memorandum of Intent, Power of Attorney, Nomination of Guardian, Health Care Directive, Last Will & Testament and a Third Party or Pooled Special Needs Trust agreement.  If the parents pass away, this plan will set forth where your child will live and will safeguard the child’s inheritance.

Planning for a Child at Age 14

Age 14 is a great age where your child is learning to navigate the world.  It is important to plan for your child at age 14 to prepare them for Social Security Income eligibility at age 18.  The planning should start at this age as current look back period and transfer penalty rules for Social Security Income go back 3 years.  The parent at this state should update an outdated Memorandum of Intent and review their own estate planning documents.  Further, at age 14 you want to talk to other family members that intend to leave an inheritance for your child.

Planning for a Child at Age 17

At age 18, your child will be legally entitled to make their own decisions.  They are legally entitled even if incapacitated and unable to do so.  At age 17, the parents need to consider beginning the legal process of applying for a guardianship and conservatorship over their soon to be adult son or daughter. Parents at this stage should familiarize themselves with the Social Security rules that they need to comply with when their child reaches age 18.  The parent’s memorandum of intent should be updated and the estate plan should be reviewed.

Planning for Your Adult Child at Age 18

When your child becomes legally of age it is imperative to complete the legal process of guardianship.  Without a legal guardianship, parents lose the ability to make decisions for their child at age 18.  At this stage, parents need to consider housing and employment for their young adult.  The parents also need to update secondary guardianship elections and update their own planning documents. Consider where your child will live when you can no longer care for them.  This could be with another family member, group home, supportive living environment or independently.  These decisions need to be made and planned for to ensure a smooth transition into adulthood.

Planning for An Adult Disabled Person

A comprehensive plan should consider trust options available based on the age of the disabled person.  There are rules that apply after the person reaches age 65.  At this stage, you need to review long term care issues, retirement issues and make sure that the parent’s estate plan is up to date.  It is appropriate to review all fiduciaries in place for your disabled adult child.  You need to consider long term housing and successor guardians for the disabled family member.  Plan for the child when the parent passes away.  Where will the child live?  Who will be responsible for the child’s immediate care?