Special Needs Planning

Special Needs Planning


One of the main reasons I sat for the Colorado bar exam more than twenty years after passing the New York and California bars was my desire to be of service to special needs families in my domicile state of Colorado. My many years of volunteer work in the Boulder mental health community, as well as experience in my own family, exposed me to the deep concern and anxiety special needs families have around planning for the future care and support of a loved one suffering from a chronic mental or physical illness. Families want to ensure that a future designated caregiver will be compassionate, trustworthy, and familiar with the individuals particular challenges. However, providing for a family member’s financial support can be particularly difficult due to the strict resource limit of $2,000 above which individuals become ineligible for Medicaid, SSI and other public benefits.

Often, family members with only good intentions leave testamentary or other gifts to persons receiving Medicaid and other benefits and inadvertently trigger the cancellation of these benefits.

Special Needs Trusts ( SNTs ) allow families to transfer assets to a trust which will be administered by a trustee for the exclusive benefit of the beneficiary, but these assets are not counted as the beneficiary’s resources. SNTs can be structured as First Party trusts or Third Party Trusts, depending on whose assets are funding the trust.

First Party Trusts are funded with the assets of the beneficiary. These can be insurance proceeds, inheritances, legal settlements, or lump sum payments from SSI or SSDI. In the absence of advanced planning, First Party Trusts are often the only means by which Medicaid or other benefits can be maintained following an unexpected inheritance, gift or other pay out. However, with a few limited exceptions, First Party trusts are subject to a repayment obligation, so any trust remainder will not revert to the beneficiary’s estate or be otherwise transferable after the death of the beneficiary.

Third Party trusts are funded with the assets of a parent, grandparent or guardian under a will or estate plan. Third Party trusts are flexible, but must contain strict language directing that trust distributions may only be made at the discretion of the trustee and directly to whomever is providing the service to the beneficiary. Third Party Trusts are not subject to any repayment or Medicaid recovery and remaining assets may be left to anyone the settler of the trust chooses.

Whether drafted under circumstances of necessity (as is typically the case in a first party trust) or set up as part of an estate plan, or a current living trust, my office can help families put plans in place to enhance the quality of life for a family member living with a life-long disability. From financing additional medical and/or dental care to paying for educational, recreational, vocational and social experiences or technology, SNTs can help ensure that a Medicaid or other public assistance beneficiary can maximize their potential without jeopardizing their eligibility for the government benefits they need.