How to Plan Future Public Benefits
Advance planning to preserve public benefits is typically done by the beneficiary's family members who want to leave an inheritance or make lifetime gifts.
In addition to preserving public benefits for a loved one, planning for special needs in advance can be incorporated into more traditional estate plans. This gives families the ability to maximize their resources because they can provide for a family member with special needs without compromising the needs of other family members.
Unfortunately, families sometimes disinherit loved ones as a way to protect public benefits because they are unaware of their options. In other words, they leave their assets to other family members with the expectation that these assets will be used for the family member with special needs. While this strategy can insure that public benefits will not be disrupted, it can also create an undue burden and stress for the other family members. It can also jeopardize the assets themselves if these family members are ever sued, go through a divorce, or have other creditor issues.
By contrast, one of the easiest, safest, and most beneficial ways to plan for a family member with special needs is with a Third Party Special Needs Trust. This allows the assets to be left for the direct use of the family member with special needs without disrupting public benefits or subjecting the assets to creditors of other family members.
Walter and Grace Howard have been married 42 years and have two adult daughters and one adult son. They are close to their children and their children’s families, and they truly enjoy the time they spend together. Walter still works fulltime, and Grace helps with child care by watching several of the grandchildren as needed.
One of the Howards’ daughters, Lisa, has a son who was born with a developmental disability. Lisa and her husband, Brian, are tireless advocates for their son, Ethan, and they work hard to provide for his special needs. Ethan is relatively high functioning, but he will always have special needs that will require extra time, attention, and resources. He currently does not receive any public assistance benefits because his parents’ resources disqualify him financially, but Lisa and Brian expect Ethan to begin receiving Medicaid and SSI when he turns 18.
Walter and Grace created Wills several years ago that provide an inheritance for their children and for their grandchildren. However, they have learned from Lisa and Brian that an inheritance in the future will cause Ethan to lose the benefits he will begin receiving at age 18. Lisa and Brian explain that they recently learned about something called a special needs trust at one of their parent advocate meetings, and they encourage Walter and Grace to create a special needs trust for Ethan in their Wills.
When Walter and Grace meet with an attorney to talk about changing their Wills, she explains they have two options. The attorney explains that she can write new Wills that will create a special needs trust for Ethan upon the death of Walter and Grace or she can create a special needs trust for Ethan while Walter and Grace are still alive. The attorney explains that both of these special needs trusts will protect Ethan’s future benefits. However, creating a special needs trust while Walter and Grace are still alive will have a more immediate benefit for Ethan because it can be used now.
After talking it over, Walter and Grace decide to create a special needs trust for Ethan while they are still alive. This means that they will only need to make a small change to their current Wills by redirecting Ethan’s share to his special needs trust. More importantly, it also means that Ethan will have a trust that can be used right away. Walter and Grace will be able to make gifts to Ethan’s trust without worrying about his public benefits. They have a large extended family, and they know that other family members would also like to make gifts to Ethan if they could do so in a way that protects his future benefits.