Is there a way to plan when one of my heirs is handicapped or has a special need?

Leaving assets to an heir who is disabled or with a special need requires special planning. There are many variables to take into account when undertaking your planning. The variables would be age and needs of the heir, available resources, available public benefits, mental capacity of the heir and concerns over distributions to your other heirs.

 

A special needs trust (SNT) can be an excellent way to protect assets if the disabled individual is in need of support after the death of the individual who is doing the planning.  The SNT is set up to hold assets for the benefit of the disabled individual and can distribute assets to the disabled individual for needs other than those covered by public benefits. These are often referred to as "third party" trusts, because they are set up by a third party settlor, such as a parent and not by the trust beneficiary. If the trust beneficiary sets up the trust it would be referred to as a self-settled trust.

 

Here is another complicated issue. For a disabled individual on public benefits (a needs and eligibility based progaram such as Supplemental Security Income (SSI) and/or Medicaid) who receves an inheritance the proceeds may disqualify the individual from public benefits. This could be devastating if the termination of benefits also means the health insurance coverage (through Medicaid) is also terminated as medical costs can be extremely high. There is a provision in Colorado law which allows the inherited assets to be placed into a court approved trust (often referred to as a d4A trust) converting the assets into a non-countable asset. The d4A trust allows the benefits to continue to be paid and the assets transferred to the trust to be used by the disabled individual for special needs other than food and shelter. 

 

Other individuals planning for a disabled heir, where "money is no object", having the assets restricted to protect public benefits may not necessarily be what the client wishes. Instead, having a trustee who can help make distributions to the disabled individual to carry on a quality of life as set forth by the client. Clients with mult-million dollar assets being available to help a disabled individual may not want to restrict the use of the assets as would be dictated by the use of the SNT designed to protect assets to access public benefits.

 

Some trusts, the "spigot" trust allows assets to be distributed in the trustees discretion in such a way as to protect the public benefits of the individual, but can be turned on if the receipt of the public benefits is less of a concern. High net worth clients, leaving large inheritances to disabled individuals may choose this type of distribution provision instead.

Brown & Brown, P.C. 1250 East Sherwood Drive, Grand Junction, Colorado 81501 (970)-243-8250 (tel), (970) 241-1144 (fax)  

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