Over the 30+ years I’ve represented families of people with serious disabilities, many clients have asked how how to make gifts or leave an estate for a child/grandchild/other loved one with special needs without disqualifying the child for Supplemental Security Income, Medicaid, and other means tested government programs. If an individual with Medicaid or other means tested aid receives more than nominal amounts directly, she probably will be disqualified. While we often can help restore benefits eventually, there could be a substantial cost such as eventual Medicaid payback or loss of benefits for several months or more.
Obviously, therefore, outright gifts/inheritances are not an attractive option to benefit a loved one with special needs. A far better choice is to provide in will, payable on death designations, IRA/401 plan beneficiary forms, and other gift and estate plans that amounts to benefit a child with special needs shall be paid into a special needs trust (also called supplemental needs trust or SNT). Extensive discussions of SNTs appear under the Special Needs drop down menu tab above and throughout SpecialNeedsNJ.com. To summarize, a properly drafted SNT can supplement many kinds of means tested benefits without risking disqualificatiion.
Sometimes parents won’t do SNT planning because they think they can reach the same result at lower cost by giving a child who isn’t disabled a gift or inheritance intended to benefit a special needs child. The Wisconsin Court of Appeals’ Sept. 3, 2015 decision in Robins v. Foseid and Walters illustrates the risk. A parent’s estate plan left a double share to not disabled child A and no share to disabled child B. While the parent’s intent likely was that A would spend the second share for B, the court ruled that A had no such obligation and could spend the share as A chooses.
Even if you are convinced that your child would always look out for a disabled sibling, it still is risky to leave a disabled child’s share to a sibling rather than an SNT. The not disabled child could surprise you and keep the money and creditor issues, divorce, college funding and other circumstances could prevent the money from benefiting your disabled child. In short, a special needs trust usually is the best way to provide for a loved one with a serious disability