Legislative Concerns for Special Needs Planning

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Essential Planning for a Loved One with Special Needs

For parents of a child with special needs, planning for the future carries a unique weight. The primary goal is to ensure your child will always be cared for and financially secure, even after you are gone. This requires a specialized plan designed to provide for their unique needs without jeopardizing their eligibility for essential government benefits like Medicaid and Supplemental Security Income (SSI).

The Foundation: Special Needs Trusts (SNTs)

A Special Needs Trust is the cornerstone of this type of planning. It is a legal tool designed to hold assets for the benefit of a person with a disability. When structured correctly, the assets in the trust are not “countable” for the purposes of qualifying for needs-based government assistance. The proper administration of these trusts is critical to their success.

  • Third-Party Special Needs Trust: This trust is funded with assets from a parent, grandparent, or other loved one. It is the most common tool used in estate planning. A key feature is that upon the beneficiary’s death, any remaining funds can pass to other family members without having to first pay back the state for Medicaid benefits.
  • First-Party Special Needs Trust: This trust is funded with the disabled individual’s own money, such as from a personal injury settlement or a direct inheritance. This trust must include a provision that repays the state for any Medicaid benefits received upon the beneficiary’s death.

A Powerful New Tool: The ABLE Account

The Achieving a Better Life Experience (ABLE) Act created a powerful new savings tool. An ABLE account is a tax-advantaged savings account that can be used for qualified disability expenses.

Like a trust, the funds in an ABLE account are generally not counted for benefit eligibility. For SSI, the first $100,000 in an ABLE account is exempt. The total account can grow much larger (often over $500,000, depending on the state) without affecting Medicaid eligibility. This makes an ABLE account an excellent complement to a Special Needs Trust, providing flexibility for managing smaller, day-to-day expenses.

A Critical Legal Update You Need to Know

For many years, a person with a disability could not create their own First-Party Special Needs Trust; it had to be done by a parent, grandparent, or court. This created immense difficulty for competent adults whose family members had passed away. Fortunately, the law has changed.

Thanks to the Special Needs Trust Fairness Act, a mentally competent adult with a disability now has the legal right to create their own First-Party Special Needs Trust to hold their own assets.

Creating a Comprehensive Plan

Planning for a loved one with special needs is a complex and evolving area of law. It requires a deep understanding of how trusts, ABLE accounts, and government benefits all interact. A well-crafted special needs plan provides security for your child and peace of mind for your entire family.

If you have questions about how to best provide for your loved one with special needs, our experienced attorneys can help. Call our office at (919) 256-7000 to schedule a consultation.