If you have a loved one with a disability, have you considered setting up a special needs trust? Many Floridians have not considered this simply because they don’t know that the option is there, but a special needs trust can be incredibly beneficial because it allows you to legally set aside funds and assets for your loved one without affecting their eligibility for Medicaid.
Why Might Your Loved One Benefit from a Special Needs Trust?
If your loved one meets the requirements for a disability under federal law, they may be eligible for Medicaid benefits that will help pay for their health care. However, there are strict financial eligibility requirements, and if your loved one’s assets exceed that financial limit, they will be unable to continue receiving Medicaid benefits.
Let’s look at the hypothetical example of a mother (let’s call her Sarah) and her adult daughter (Amy). Sarah raised Amy, who has Down’s Syndrome, as a single mother and at various times held multiple jobs to make ends meet. Fortunately, Amy qualified for benefits through Medicaid, relieving some of the family’s financial burden. However, when Amy was 22, her grandmother passed away and left Sarah a sizeable inheritance, which put Amy above the financial limit to qualify for Medicaid. While her grandmother meant well, Sarah and Amy had to use the inheritance to cover health care and then waited to qualify for Medicaid benefits again upon “reimpoverishment.”
This could have been avoided with a special needs trust. If the money left by Amy’s grandmother had been moved into a trust for Amy, it wouldn’t have been counted as part of her assets or annual income, and she would have been able to continue qualifying for Medicaid. She would then have been able to use the money in the special needs trust to supplement any government benefits that fell short of her actual need. She and her mother would have been able to live comfortably rather than just barely scraping by.
Steps to Establishing a Special Needs Trust
A special needs trust must be established by a grantor, who cannot also be the beneficiary (so in the example above, Sarah would need to be the grantor while Amy would be the beneficiary). The grantor will also need to name a trustee, who can be just about any “competent adult” other than the beneficiary. In our example, Sarah could name herself as the trustee and name another trusted family member as the successor trustee. She could also choose to name a bank, attorney, or accountant as successor trustee if she did not feel comfortable leaving the trust in the hands of a family member.
To make the special needs trust valid in Florida, the grantor will have to write up and sign the trust document and have it notarized. It may be a good idea to work with a trust administration lawyer to ensure that the document is worded properly and is not likely to be contested or terminated.
After the trust is notarized, the grantor will need to wait to receive a tax identification number from the IRS. Once he or she has this number, he or she can begin adding money and assets to the trust. Anyone can add assets and any type of asset can be put in the trust, including real estate, stocks, and valuables like jewelry, but because money in the trust must be used to supplement government benefits, the trustee may need to sell items (such as jewelry) to translate them into money in the trust.
Someone who wishes to name a loved one with special needs as a beneficiary should leave their property to the special needs trust by specifying in their will that they are leaving their property to the trustee to transfer into the trust. Another option is to leave property in a revocable living trust and specify that it should pass directly to the special needs trust upon the grantor’s death. The advantage of this option is that property held in a revocable living trust won’t get tied up in probate, meaning assets will be transferred to the special needs trust more quickly. Parents or grandparents will often do this in order to ensure that their loved one with a disability will be cared for after they are gone.
If you want to learn more about setting up a special needs trust in Florida, or if you are ready to establish a special needs trust for a family member, it’s a good idea to talk to an estate planning attorney who has experience setting up this kind of trust. Work with a professional to ensure that your loved one has the financial support that they need.
About the Author:
Christopher Q. Wintter is the founder of Wintter & Associates, P.A. and a board-certified expert in Trust and Estate matters by the Florida Bar. With more than 24 years’ experience as a practicing attorney, he also serves as an instructor and faculty member for the National Institute of Trial Advocacy (NITA)—the nation’s leading provider of legal advocacy skills training to practicing attorneys—and has earned the AV® Preeminent™ rating with LexisNexis Martindale Hubbell. He was also selected for inclusion in Florida Super Lawyers for 2011 and 2012 in Estate and Trust Litigation.