Brandon Prinsen and Katelyn Doyle, attorneys at Johns, Flaherty, and Collins, SC presented on estate planning for families who have individuals with special needs on February 4th during a DSAW webinar co-hosted by DSAW- La Crosse and Thrivent Financial. We are summarizing the presentation here. Please access the recording of the webinar for further information.
Why is estate planning so important for families who have individuals with special needs?
A gift or inheritance can unintentionally affect an individual's need-based benefits.
Need-based Benefits include: Social Security, Disability, Supplemental Security Income (SSI), and Medicaid
These benefits cover shelter, food, clothes, services, and health care expenses (Medicaid).
2021 Limits for Need-based Benefits
An individual receiving benefits can have a maximum of $794 per month in income and $2,000 total in available resources.
An individual receiving benefits must meet the legal definition of disability.
What makes up my "estate"?
Bank Accounts
Business Interests
Car
House
Investment Accounts
Life Insurance Proceeds
Personal Property
Real Estate and Land
Stocks & Bonds
Estate Planning Documents: Will VS. Trusts
Will
A will is a document prepared by an attorney.
The will designates an executor or personal representative.
In the event of your death, this person manages your estate and makes sure all assets passed through the will are dispersed to the beneficiaries you designated.
Expenses of administration
Your will states that the executor should use any assets or funds that pass through the will to cover any expenses that occur from administering your estate.
Things like funeral costs, debt, legal fees, etc.
Beneficiaries
You name your beneficiaries in your will.
Beneficiaries are the people who receive your assets.
children, relatives, charities, etc.
Guardianship
Your will designates a guardian for minors or individuals with disabilities.
The guardian takes care of the individual after you are deceased and is responsible for them.
A court rules on the guardianship decision later on, but the designation in the will informs that ruling.
It is recommended to designate a primary and alternate guardian within the will.
Testamentary Trust
A bank account that is outlined in your will (optional)
Declares that all assets in your will go into this trust and a trustee takes over to distribute assets to minors and individuals with disabilities according to the terms you set in the will and trust agreement
Requires declaring a guardian for children or individuals with disabilities
Any asset that passes through a will is subject to probate.
Probate is a process where the court gets involved to administer an estate.
There are fees and costs associated with probating an estate that you may want to avoid by setting up a different type of trust.
Revocable Living Trust
A bank account that is set up with an attorney who drafts a trust agreement
Alternative to setting up a Testamentary Trust
Settlers are the people who set up the trust agreement.
Settlers have full control over the trust. They can change the terms at any time.
Trustees are the people that manage the trust during their lifetime.
Upon their death or disability, there is a successor trustee that takes on responsibilities of managing the trust and making distributions to the beneficiaries named in the trust agreement.
Can be a family member, friend, trust company, or advisor
Supplemental Needs or Special Needs Trusts
Why would you set up a Special/ Supplementary Needs Trust?
If all of your assets go to your child who has special needs, they could become disqualified from receiving SSI.
They would then have to use their inheritance to pay for things otherwise covered by SSI (food, shelter, clothing).
How would I set up a Special/Supplementary Needs Trust?
You can establish a Supplemental/Special Needs Trust through a Testamentary Trust set up in your will or a Revocable Living Trust.
Recommended: Revocable Trust with Supplemental Needs provisions
The Different Kinds of Special/ Supplementary Needs Trusts
First-Party Special Needs Trust
A trust established by an individual with a disability with the help of a guardian in the event the parents pass away without setting one up for the individual.
The individual can use funds in the trust to supplement what they receive from public benefits.
Community support, recreation, housekeeping services, education, health expenses not covered by Medicaid, etc.
Provisions in the trust restrict the funds from being used for things SSI covers.
food, shelter, and clothing
Payback provision
Whatever balance remains in the account upon the individual's death has to be used to pay back the state or federal government for Medicaid and SSI the individual received during their lifetime.
Third-Party Special Needs/ Supplemental Needs Trust
Attorneys work with parents of an individual with special needs to establish a Special Needs/ Supplemental Needs Trust that will be funded by parents' assets.
The child can then use the funds to cover what SSI doesn't cover.
No payback provision
If the individual passes away, the assets go to other beneficiaries named by parents in their will.
Pooled Special Needs Trusts
Type of Special Needs Trust through WisPACT, Inc.
Pooled investment and management trust
Typically used by people who don't have any trustees to manage assets and are looking for an organization or trust company to make distributions to their individual with special needs.
WisPACT, Inc. is responsible for making the distributions to the individual.
Funding Sources For a Supplemental/ Special Needs Trust
Bank Accounts
Investment Accounts
Life Insurance Policies
Most common
Designate the trust as the beneficiary of your life insurance policy
House
Real Estate passes into the trust, the trustee manages the house
The trust owns the house, not the individual with disabilities, so benefits would not be impacted.
Lawsuit Settlement
ABLE Accounts
A planning tool used in conjunction with Special/Supplemental Needs Trusts
Tax advantage savings account created for individuals with disabilities
The beneficiary is the account owner.
Any income earned in this account is not taxed.
Can hold up to $100,000 without affecting SSI benefits
Anything above that will cause SSI to terminate
The individual can reapply when funds are spent down
Can be used to supplement SSI and Medicaid benefits and to pay for qualified disability expenses.
More flexible than what special needs trusts can be used for
Defined as "any expense related to the designated beneficiary as a result of living a life with disabilities"
Education, employment training, support, healthcare expenses, financial management services, and other services to improve their quality of life
