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Setting Up a Special Needs Trust the Right Way Is Imperative


When it comes to setting up a special needs trust, it is imperative that families work with an attorney who not only knows about the complex federal, state, and local laws and rules surrounding the specific type of estate planning required for the specific type of circumstance, but also all of the many programs that may provide families with assistance along the way. This type of trust requires a lot of planning and legal and financial expertise because one wrong move can result in disastrous consequences, as we discuss below.

Making Sure The Trust Is Exempt Under The Omnibus Reconciliation Act of 1993

For example, one law that the estate planning attorney needs to be intimately familiar with is the Omnibus Reconciliation Act of 1993, which establishes the rules for such trusts, and dictates what counts as income or resources and why, as well as what then reduces or eliminates eligibility for a number of benefits, such as Medicaid and Supplemental Security Income (SSI).

Therefore, that trust needs to be set up appropriately so that it can be exempt. Specifically, a special needs trust that has been properly drafted can qualify for exemption as long as it is:

  • limited to one lifetime beneficiary;
  • irrevocable; and
  • the only things that funds in the trust are used for is used to cover dental and medical care, which can include rehabilitation, transportation, and related services.

What Can Go Wrong

Consider a family that has a child with a special needs trust and who also has Medicaid coverage through an SSI benefit: This child requires constant care and monitoring, leaving one or both parents unable to work. If, for example, one parent or a relative leaves a portion of their retirement plan and/or share of their estate to the child upon their death, but does not properly execute a beneficiary designation, these funds could count as income and diminish other benefits, such as the child’s SSI.

This family requires very specific planning services and advice from an estate planning attorney, in part so that the trust is not subject to Medicaid reimbursement at any point. While the funds in the trust can pay for certain costs – such as that which is not covered by Medicaid – they are not available to pay for expenses such as rent, household, and related expenses. Therefore, one strategy might involve placing any estate funds left to the family into a new special needs trust for the child so that it is not subject to federal reimbursement rules. This could also involve establishing an inherited rollover IRA and Qualified Income Trust so that these funds do not affect the SSI payment.

However, how to cover expenses related to housing, maintenance, and support costs for the family can still present a challenge. The family should absolutely look into pursuing participation in a number of other programs, such as the Supplemental Nutrition Assistance Program and Temporary Assistance for Needy Families, as these can provide food vouchers; however, it is important to note that recent changes to these programs have eroded some of the basic assistance that they provide the families like this.

Contact Our Florida Estate Planning Attorneys

If you live in Florida and have questions about setting up a special needs trust or any other estate planning needs, contact our experienced Sarasota wills & probate attorneys at Suncoast Civil Law today to find out how we can help.