One common scenario routinely encountered when planning a client’s estate is figuring out a way to allow a child with special needs to receive an inheritance from a parent (or other loved one) without it adversely impacting that child’s Social Security or Medicaid benefits. As estate planners, we often resort to using special needs trusts (also commonly known as supplemental needs trust) in the parents’ estate plans.
You might be wondering: what is a special needs trust (SNT)? A SNT is a specific kind of trust that can receive and hold property and/or money for an individual with special needs and it will not impact that individual’s right to receive those government benefits he or she had been previously receiving.
There are two main categories of federally recognized SNT’s—d(4)(A) and d(4)(C). These are known as Medicaid pay-back trusts. The most commonly used federal SNT is the d4A trust, being named after its location in the United State’s Code 1396p(d)(4)(A). This trust uses the disabled person’s money to fund the trust, and the disabled person is named as the beneficiary of that trust. Often times, a parent, guardian or attorney is named as the Trustee to oversee and manage the Trust as there are very strict guidelines related to disbursements from the trust. When the trust beneficiary dies, any money remaining in the Trust must be used to pay back the State of Maryland (or other state) for any amounts it paid out in Medicaid benefits for the beneficiary.
The other common federal SNT is a d(4)(C). This type of SNT is called a “pooled special needs trust” meaning the assets of the individual are pooled together with the assets of others for investment and management purposes and managed by a non-profit entity. Don’t worry though, the assets of the individual are kept separate and accounted for until the beneficiary dies at which point the assets pay back the state Medicaid agency. Any left-over funds are retained by the asset pool.
If you are concerned about special needs planning, the attorneys at the ERA Law Group, LLC are here to help!