Special Needs Parents Need Special Plans- Plan-NJ

Special Needs Parents Need Special Plans

Congratulations! By contacting PLAN/NJ you’ve taken the first step to providing for your loved one with disabilities, but do you really have to do more now with times so tough? Although estate planning documents aren’t needed until you become disabled or die, waiting to get your legal affairs in order can forfeit opportunities to preserve important disability benefits like Medicaid, supplement government programs, and protect savings against taxes or government liens for aid previously provided to loved ones with disabilities.

Why do I Need Special Needs Planning

People with serious disabilities may qualify for government programs that provide cash assistance, health care, rent subsidies, group homes, and other housing. However, most programs are limited to individuals with only nominal savings and incomes. While parents and grandparents are living, these financial limits rarely impact people who can’t work, but ordinary wills and trusts and insurance and retirement beneficiary designations can jeopardize Medicaid and other government aid. Inheritances, insurance, 401(k)s, IRAs, and other amounts even may be claimed by government agencies to repay prior benefits like Division of Developmental Disabilities housing. Special needs planning lets families rest easy knowing their hard earned savings, insurance, and retirement funds will supplement rather than replace government benefits like Medicaid, cash assistance, and housing.

What Is Special Needs Planning

Special needs planning supplements rather than replaces government aid for a person with disabilities. People who receive government benefits may lose eligibility or even have to repay prior aid when they receive amounts outright or gain a legal right to access them for support. Basic special needs planning gives nothing to a disabled loved one directly but instead funds an SNT to supplement government programs. [SNT means “special” or “supplemental needs trust”, terms lawyers use interchangeably.] Special needs lawyers typically draw will and beneficiary forms to pay insurance, IRA, 401(k) and other retirement funds into an SNT rather than to a person with disabilities directly.

If a widow with a $300,000 house and $200,000 in savings dies with no will or a will that creates an ordinary trust for children but is survived by a son with autism and a daughter without disabilities, each child would receive $250,000. The inheritance would disqualify the son with autism for Medicaid and other benefits. DDD also could assess the inheritance to repay the son’s costs to be in a group home, supervised apartment, or other residential placement. If the widow’s will instead left the son’s share in an SNT, the son could keep benefits and DDD couldn’t touch the money. Meanwhile the SNT could use the money to improve the son’s life.

What Differentiates an SNT from an Ordinary Trust

Typical trusts (especially common estate planning trusts) disqualify beneficiaries for government program and may be subject to liens for prior benefits because they mandate distributions and are designed to fund support. In contrast, SNTs grant trustees broad discretion over distributions. Because the beneficiary doesn’t have a legal right to force SNT distributions, the SNT isn’t disqualifying and shouldn’t trigger liens for prior benefits. Thus, amounts left in an SNT can supplement government benefits instead of supplanting them.

To qualify as an SNT, a trust must meet technical requirements beyond the purview of most lay people and many lawyers. When parents haven’t worked with a special needs lawyer, their death usually disqualifies a child with disabilities for government programs and can lead to recapture of prior benefits. Because even a well drafted SNT can prove disqualifying when it isn’t administered properly, it is important that both the lawyer and trustee be familiar with government aid rules. For this reason, PLAN/NJ can be an excellent choice for trustee.

SNTs that contain litigation recoveries and certain other amounts must meet additional detailed requirements. Because these SNTs have to repay Medicaid when the beneficiary dies, third party money normally shouldn’t be added to these trusts, and instead separate SNTs should be drawn.

What Documents Do I Need Besides an SNT

Everyone should have a will, which is the principal means to minimize estate tax, name guardians for minor and disabled children, and fund an SNT. Without tax planning wills, a couple worth as little as $675,000 may trigger New Jersey estate tax whereas substantial tax can be saved with simple tax planning wills. Health care directives and powers of attorney also are important to ensure your wishes are carried out and to protect amounts against long term care costs. For instance, comprehensive power of attorney may let you set aside for a disabled loved one funds that otherwise would be lost on your own nursing home care.

Should I be Concerned with Guardianship

It surprises many parents to learn that don’t have legal rights over a child with serious disabilities after age 18 unless they become legal guardians. Guardianship is appropriate only when a child can’t make important decisions, but parents should apply to the courts for guardianship when a child’s capacity is very limited. Application typically is made by a lawyer, and requires support of physician, psychiatrist, and/or DDD.

Planning and PLAN

Now that you know what to do, it’s time to see a special needs lawyer to draw will, SNT, power of attorney, and health care directive and, perhaps, consider tax planning and guardianship.

Lawrence A. Friedman practices law in Bridgewater, New Jersey and can be reached at 908-704-1900. His website specialneeds-nj.com has many other articles on special needs planning. Larry chaired the New Jersey State Bar Association Elder & Disabilities Law Section and was a founding member of the PLAN/NJ Board of Directors. He has been Certified as an Elder Law Attorney by the A.B.A. approved National Elder Law Foundation and frequently lectures and writes for lawyers and lay people on special needs, elder law, wills, estates, trusts, government benefits, guardianships, and tax law. Friedman received the New Jersey State Bar Association’s Distinguished Legislative Service Award for writing legislation to further special needs trusts in New Jersey. He received his LL.M. in Taxation and J.D. from New York University School of Law.