June 2021 Newsletter
From The Certified Elder Law Attorney's Desk:
William W. “Bill” Erhart
Trusts for People with Disabilities and Chronic Illnesses
Last July we wrote about some changes in IRA distribution law known as the SECURE Act. One change makes designating a Qualified Disability Trust a beneficiary of an IRA instead of an individual efficient for both tax and public benefit purposes. This newsletter explores the use of such trusts and confusion about them.
Often called Special Needs Trusts, because they are frequently for those who have special needs, we prefer to more accurately use the term “Supplemental Needs Trusts” (“SNT”) as they function to preserve assets and to supplement the quality of life of someone who is eligible for public benefits such as Medicaid or Supplemental Security Income (“SSI”).
There are several types of SNTs, depending upon: who creates the trust; whose money or property funds to goes into the trust; age of the beneficiary when the trust is created; type of illness or disability; value of property or amount of money in the trust; type of benefits being qualified for; and whether other people or entities may benefit from the trust once the original beneficiary dies.
Both disability law and tax law, which is always volatile, make planning for people with disabilities difficult.
According to a recent Wall Street Journal article, many parents are confused how to plan for children with disabilities. A University of Illinois study in 2018 found that less than half of parents of children with disabilities have a plan for their child’s future. The chief reason? Parents are overwhelmed by the stress, time and reluctance of family members to help. Combined with the complexity of establishing the proper trust with the necessary terms, transferring and retitling of assets and the tax consequences, it is not a surprise that proper planning is deferred, often until it is too late to properly save the assets.
Sometime parents will essentially disinherit a child with a disability by leaving the assets with another child hoping that child will care for the one with a disability. That puts an unwelcome strain on the healthy child, changes the relationship between the children and more often than not, the assets are eventually dissipated and the child with a disability left with nothing to supplement their quality of life.
Often parents think that a child with a severe disability, who may need institutional care or a live in a group home, does not need the supplemental resources that can be provided through a SNT. SNT planning can provide for many services, equipment and necessities that public benefits will not pay for. For example: clothing, transportation, special equipment, additional aides; education, furniture and opportunities for enrichment.
Medicaid, or Medicare may not pay for physical therapy or palliative care that one’s personal physician may recommend. Funds from a SNT can be used. If one is being bathed once a week in a facility, the SNT can pay for additional bathing. If it comforts the child, who will be an adult more often then not when distributions from a SNT are required, to have someone read to them, play games or just provide companionship, then the SNT can pay for those basic touches of humanity.
SNTs have a trustee whom the trustmaker selects. It can be a relative, friend or a professional. The trustee makes distributions on behalf of the beneficiary according to the terms of the trust. Since the assets are not in the name of the beneficiary, the beneficiary remains eligible for benefits. Additional, since the assets are in trust, it is difficult or impossible for creditors to obtain access to the SNT funds. Again, that depends on the type of SNT and how it was established and funded.
Our firm routinely assists clients with planning, creating and understanding SNTs. We have experience creating SNTs for just a few thousand dollars to several million. It is one of the most rewarding things we can do to help families protect each other, preserve what they worked hard for and give them comfort that they have done the right thing for their child.