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Special Needs Trusts

By Nehemiah Jefferson, Esq., LL.M.

Certainly, it cannot be assumed that we would always be available and able to care for our loved ones.  Therefore, estate planning for a loved one with special needs is necessary to ensure the continuing care if you are unable to do so.

I had an aunt with down syndrome. Linda was always happy and brought a lot of joy to those she came in contact with. She was well-known in a small town of about 3000 people.  She often walked everywhere she wanted to go and did what she wanted to do. “I’m going to the store” she would say and nobody was concerned about whether she would return safely. Since my grandparents (her parents) were older, even as a teenager, I would wonder what would happen to Linda if my grandparents passed away. Who would take care of her? Linda passed away at age 35. 

The special needs trust is an estate planning tool that can be used to alleviate concerns regarding the future care of individuals like Linda.  A special needs trust is an irrevocable trust developed to take care of a person with special needs. This type of trust also can preserve eligibility for means-tested government benefits, for example, Medicaid or Supplemental Security Income. A special needs trust that is established by a family member is called a “third-party” special needs trust. If the special needs trust is established by the beneficiary, it is labeled a “self-settled”special needs trust.

The special needs trust is established by a settlor also known as a grantor. The designated trustee must follow strict trust distribution requirements so that the government benefits are not affected.  The trustee may face personal liability in situations where administration of the special need trust is not proper (i.e. it affects benefits eligibility). For example, since Medicaid covers basic need expenses such as food, utility bills and rent, the funds of the special needs trust cannot be distributed for those type of expenses. In determining Medicaid eligibility, special needs trust assets are not counted.

There is much more that can be stated about the benefits and limitations of the special needs trust. As with any legal document, you should consult an Attorney. This article is for educational purposes only, is not legal advice, and is not a substitute for consulting legal counsel.

Nehemiah Jefferson, Esq., LL.M., is Principal of Esquire Tax Firm PLLC. The firm practice areas include Civil and Criminal Tax Representation, Estate Planning, Probate, Guardianship, and Business Planning. He earned his Bachelor’s degree from The Florida State University, his Juris Doctor from John Marshall Law School (Atlanta), and LL.M. in Taxation from the University of Alabama. Attorney Jefferson is licensed to practice law in the State of Florida, Texas, The District of Columbia, and is a member of the United States Tax Court Bar. He may be reached at www.esqtaxfirm.com.