Special Needs Estate Planning
SPECIAL NEEDS ESTATE PLANNING 101
Planning for families with a special needs child or adult is a difficult but necessary task. Often, government and public assistance is crucial for disabled children and adults. Sean Robertson and Robertson Legal Group, LLC concentrate in Special Needs Estate Planning and Asset Protection. Sean Robertson is Principal Attorney of Robertson Legal Group, LLC, which concentrates in estate planning, special needs estate planning, asset protection, and guardianship planning for disabled adults and family members. Recently, we had a family death and an inheritance to a disabled adult has become a big issue. For this article, we will call her “Jackie”.
Jackie received an inheritance through an individual retirement account (or otherwise known as an “IRA”) from her sister. The attorney is an older attorney that assist with estate planning documents infrequently and the concept of a “Special Needs Trust” or estate planning for a disabled adult was a foreign concept. We are still waiting to see whether Jackie will be ineligible for government benefits until she spends down her new assets that she received in her personal name or her trust’s name. One of the problems is Medicaid or the Social Security may consider the Trust’s assets as an available asset and Jackie may be ineligible for government benefits.
WHAT ARE THE OPTIONS FOR FAMILIES WHERE AN INDIVIDUAL HAS SPECIAL NEEDS?
There are several options for families where Special Needs Estate Planning is a major issue. The first issue is a parent or parents must plan their estate plans with an attorney familiar with special needs estate planning. For example, I performed a real estate closing for a parent who has a special needs child about six (6) months ago. This person has an either a Special Needs Trust or has a Trust for their daughter who is a disabled adult. One of the key issues is making sure a person’s assets do not go directly to the disabled adult. A disabled adult’s public benefits such as Medicaid and/or Social Security Disability Income
There are two (2) types of Social Security, which have significantly different results for a special needs adult. The first type of Social Security is described as “Supplemental Security Income”, which is a needs-based government assistance program. To qualify for Supplemental Security Income a recipient must have less than $2,000 in assets and have a limited income. Unlike the second type of Social Security program, which is called “Social Security Disability Insurance”. The major difference between Supplemental Security Income and Social Security Disability Insurance is whether one has worked enough and paid into the Social Security Disability System. For example, my father qualified for Social Security Disability Insurance around age 57 years old because he paid payroll taxes for a sufficient amount of time to qualify for social security disability insurance. Social security disability insurance is much more difficult to qualify for people a medical doctor must make a medical determination and a person must qualify to meet the standards of social security disability insurance. Unlike Supplemental Security Income, Social Security Disability Insurance is not a needs’-based system. Most recipients had the ability to work at some point and developed an illness which prevented them from working. Special needs families are often faced with Supplemental Security Income where their adult children have infrequently worked or never worked. Generally, special needs’ adult children are on public assistance receiving food stamps, Medicaid (health insurance help), and supplemental security income. Often, special needs’ children reside with their parent or parents and the parents provide significant care taking responsibilities.
SPECIAL NEEDS ESTATE PLANNING LAWYER IN YORKVILLE, OSWEGO, AND PLANO, ILLINOIS FOR DISABLED ADULTS
There are several alternatives that parents or grand parents of special needs’ children must consider. The first consideration is whether to seek appointment as their disabled adults’ guardian. There are two (2) types of guardianship. The first type of guardian is the guardian of the person. The second type of guardianship procedure is a guardian of the estate. Generally, guardians who are often a parent or grandparent assume the role of managing a person’s finances and health needs. Most families will avoid the guardianship role unless it is necessary. Appointment of a guardian becomes critical after a parent or parents’ deceased. Disabled adults should employ special needs’ language in their last will and testament in case of their death.
ESTATE PLANNING STRATEGIES FOR FAMILIES OF SPECIAL NEEDS CHILDREN IN PLAINFIELD, OSWEGO, YORKVILLE, AND JOLIET ILLINOIS
There are several estate planning strategies that should be considered for parents who have special needs’ children or relatives that want to provide for their loved ones who happen to be disabled adults. The first estate planning strategy is utilization of a Revocable Living Trust or otherwise known as a “Living Trust”. A Living Trust is an estate planning tool where a person or couple distribute their assets upon a death. It is critical that relatives do not directly direct an inheritance for a special needs’ adult or set up a type of trust that does not supplement a disabled person’s government benefits. Thus, the type of trust is a critical estate planning decision. It is also advised that last wills and testaments and living trust have a springing provision which allows for the creation of a special needs’ trust. This is vital because a person may later develop a disability later in life such as my father where inheriting assets may disqualify them from certain government benefits such as Medicaid. Although certain person’s may not receive the government need based social security, this does not mean that such persons may not be on some type of government assistance.
TWO TYPES OF SPECIAL NEEDS TRUST IN YORKVILLE AND OSWEGO, ILLINOIS
The two (2) types of special needs trust are a “Third Party Trust” and a Self-Settled Trust”. Generally, a Third-Party Trust is created by a parent, grandparent and/or sibling. A Third-Party Trust may be created upon a person’s death such as in my case, my family’s aunt deceased leaving money to a sister or sibling. This is an example of a Third-Party Trust. Like other types of Trust, a Trust is an estate planning device that outlines how a person wants the Trust to be managed in certain situations. Every Trust has a Trustor or Makor of the Trust and a Trustee. A Trustee is a person or entity that manages the Trust and fulfills the wishes of the Trust Makor. Every Trust must have a name of the Trust such as the “John Smith Special Needs Trust dated May 19, 2018”. This is an example of the name of the Trust, which also signifies the type of trust or otherwise known as a “third-party special needs trust”. The Trust is initially funded by life insurance or other assets from a third-party such as through a Last Will and Testament or a Revocable Living Trust. A Special Needs Trust may also be named in different family member’s inheritance documents to assist a disabled adult.
Unlike most Trust, a recipient of a Special Needs Trust cannot assert any control over a Special Needs Trust. Thus, the beneficiary or the disabled adult is not the Trustee unlike your traditional Revocable Living Trust. Second, a Special Needs Trust may not be revoked unlike a traditional Living Trust or otherwise named “Revocable Living Trust”. The beneficiary cannot simply revoke the Trust and change the terms of the Trust. Third, the disabled adult has no right to assign their benefits received from the Trust to a divorcing spouse or creditor unlike a Revocable Living Trust.
Third-Party Special Needs Trust must have a Trustee that is financially sound and organized. The role of a Trustee is a significant role which significant responsibility and significant over a disabled adult’s life. A corporate or professional trust must be considered, and adequate life insurance coverage and other assets must be considered. A Third-Party Trust for the disabled adult often will have a provision in their Trust that allows the Trustee to petition the probate court and spend Trust’s assets for the benefit of the Third Party Special Needs’ Trust beneficiaries.
Unlike traditional Living Trust, a Special Needs’ Trust will have distribution guidelines which prohibit certain types of transfers such as a direct payment to a disabled adult or beneficiary of the Third-Party Special Needs’ Trust. Special needs are defined as maintaining a disabled person’s good health, safety and other needs, when in the discretion of the Trustee, the services are not provided by any other government agency, office or department. Often, these financial transactions are considered “supplemental expenditures” because they are designed to supplement the expenditures of government spending for the benefit of a disabled adult. The goal is to maximize government assistance benefits while minimizing the expenditure of the Third-Party Special Needs’ Trust assets. Thus, the goal is preservation of assets to strengthen the financial resources available for the disabled adult.
The Third-Party Special Needs’ Trust will prohibit any expenditure of assets that will be re-titled into the disabled adult’s name such as an individual retirement account or a living trust. For example, a disabled adult must not directly inherit real estate or any other assets. Special attention must be given to family member’s possible intestate succession inheritance issues such as a sister that fails to have an estate plan and has no children. Any direct inheritance to the disabled adult is directly prohibited.
A Trustee should annually evaluate educational, training opportunities, and residential opportunities to maximize self-sufficient (as much as possible) for a disabled adult. The Third-Party Special Needs Trust may consider purchasing a condo or a home for a disabled adult. Family members often feel uncomfortable co-signing for their disabled adult relatives and maximizing financial resources is always a priority. A Trustee should actively evaluate recreational, leisure and the social needs of the disabled adult as well. Like most Trust, careful consideration to Successor Trustee’s and alternative beneficiaries upon a disabled adult’s death should strongly be considered. Careful and experienced estate planning counsel is essential to protect your family’s loved ones and develop a practical and realistic estate plan.
YORKVILLE, OSWEGO, AND PLANO IL SELF-SETTLED TRUST ATTORNEYS IN KENDALL COUNTY
The second type of Special Needs’ Trust is a Self-Settled Trust or otherwise known as an OBRA Trust. Unlike a Third-Party Special Needs Trust, a Self-Settled Special Needs Trust is established by the disabled person themselves. For example, John Smith had a personal injury lawsuit where he was going to inherit a substantial sum of money. This is an example of a Self-Settled Special Needs Trust because the disabled adult created the Special Needs Trust with their own assets and money (even lawsuit proceeds). A Third-Party Special Needs Trust is set up to shelter a disabled adult’s assets or inheritance from government disqualification. A Third-Party Special Needs Trust is a type of exempt asset, which is not considered when a disabled adult applies for government assistance.
In contrast, a Self-Settled Special Needs Trust differs because clearly a disabled adult has substantially greater assets than $2,000. Similarly, to the Third-Party Special Needs Trust, assets in a Self-Settled Special Needs Trust are considered an “exempt asset”. However, unlike a Third-Party Special Needs’ Trust, a Self-Settled Special Needs Trust must payback any benefits that are received by the disabled adult. A Self-Settled Special Needs Trust is considered a “Payback Trust” or “OBRA Trust”. OBRA Trust was created under a federal law that authorized the creation of an OBRA Trust for disabled adults.
With a Third-Party Special Needs Trust, there is a five (5) year look back period where the government can overturn any transfers that were made up to five (5) years prior to applying for a government assistance program. The Self-Settled Special Needs Trust does not have a claw back provision. The claw back provision in a Self-Settled Special Needs Trust is the payback language, which is essentially a reimbursement clause for any assets that the government spent providing benefits for a disabled adult. Thus, Self-Settled Special Needs Trust likely will not have a contingent beneficiary unless there are substantial assets in the Trust’s name. A guardian or an agent under a power of attorney or a court may consider funding and creation of a Self-Settled Special Needs’ Trust. This type of Trust must not be established if the person is over the age of 65 years of age.
EXPERIENCED SPECIAL NEEDS ESTATE PLANNING COUNSEL IN YORKVILLE, PLANO, OSWEGO, AND PLAINFIELD IL FOR FAMILIES THAT HAVE SPECIAL NEEDS CHILDREN OR ADULTS IN THEIR FAMILIES
In conclusion, Sean Robertson and Robertson Legal Group, LLC concentrate in estate planning, special needs estate planning, and asset protection for families and individuals in Yorkville and Kendall County area. Sean Robertson has offices in Yorkville near Plano, Bristol, Newark, Oswego, Plainfield, Joliet, Plattville, Aurora, and Shorewood, Illinois.
Sean Robertson is a graduate of DePaul University College of Law and University of Illinois at Urbana-Champaign. Sean Robertson has over fourteen (14) years of estate planning experience and he is passionate about helping families with their customized estate planning legal solutions. Sean Robertson may be reached at 630-780-1034 or via online contact form.