NJ Special Needs Trusts and Disability Planning

When parents can no longer care for their special needs children due to disability or death, care-giving responsibility falls on siblings, other family members, and the community. Frequently, expenses increase dramatically when care previously provided by parents must instead be provided by professionals. The New Jersey Law Firm of Donald D. Vanarelli helps the disabled population through planning services focusing on special needs trusts and accessing available public benefits.

Questions Faced by Parents of Special Needs and Disabled Children

1. Who will care for my disabled child when I am no longer able to do so?
2. Will my own medical needs and the catastrophic costs of long-term care deplete my assets so that little or nothing will be left for my disabled child?
3. Can my child maintain eligibility for Supplemental Security Income (SSI), Medicaid, New Jersey community services for the developmentally disabled, housing subsidies and other need-based public benefits after I’ve passed away?

Trust Planning for a Disabled Family Member

Americans are living longer than they did in years past, and the life span of those with disabilities is also increasing. According to one estimate, 480,000 adults with mental and/or emotional disabilities are living with parents who are aged 60 or older. This figure does not include adult children with other disabilities and those who live separately, but still depend on their parents for vital support.

When these parents can no longer care for their children due to their own disability or death, the responsibility to provide care falls on siblings, other family members or friends, or professionals. In many cases, expenses will increase dramatically when care and guidance that had been provided by parents instead must be provided by a professional for a fee.

Special-needs trust planning by parents can make all the difference in the life of a child with a disability. Planning is also critical for the disabled child’s siblings, who may be left with the responsibility of caring for the disabled sibling (in addition to managing a career and caring for their own families and, possibly, ailing parents).

The Critical Component: A Plan of Care

For a family with a special-needs child, the goal of estate planning usually involves providing for the disabled child’s needs without endangering eligibility for needs-based governmental benefits.

Often, parents make outright bequests to their children in equal shares; however, this distribution plan may be detrimental for a disabled child. An inheritance could disqualify an adult disabled child from needs-based government assistance. Disqualification for public benefits may also occur if the disabled child is the beneficiary of a life insurance policy or retirement plan, or if the child owns a bank account individually or jointly with another.

A special needs trust is a much safer vehicle for providing funds to a disabled loved one. The trust will protect assets from the claims of creditors and should, if properly drafted, allow the child to continue to qualify for the needs-based government assistance so vital to the child’s continued well-being.

Special Needs Trusts

Special needs trusts (also known as “supplemental needs” or “supplemental benefits” trusts) allow a disabled beneficiary to receive gifts, lawsuit settlements, inheritances or other funds, without jeopardizing eligibility for government benefits based upon financial need. Such trusts are drafted so that the funds will not be counted in determining the beneficiary’s eligibility for public benefits. As the name implies, special needs trusts are designed to pay for comforts and luxuries that could not be paid for by public assistance, as opposed to basic support. These trusts typically pay for goods and services like education, recreation, counseling, and medical attention beyond the basic necessities of life. (However, the trustee can use trust funds for food, shelter and other necessities if the trustee determines that doing so is in the beneficiary’s best interest despite the possible loss or reduction in public assistance.)

Special needs trusts may be created by a parent or other family member for a disabled child (even though the child may be an adult by the time the trust is created or funded). Such trusts also may be established in a last will and testament, for a deceased family member to leave assets to a disabled relative.

In addition, a parent, grandparent, guardian, or a court can create a “self-settled” trust to protect assets that belong to the disabled individual. These “self-settled” trusts are frequently established for individuals who become disabled as the result of an accident or medical malpractice and later receive the proceeds of a personal injury award or settlement. Each public benefits program has restrictions that the special needs trust must meet so as not to jeopardize the beneficiary’s continued eligibility for public benefits.

The Parents’ Estate Plan

In order for a disability plan involving a special needs trust to be effective, the parents’ estate plan often must be modified. Any inheritance for the disabled child should be left to the special needs trust. Parents also must tell family members who might wish to gift assets during their lives, or leave assets upon their death, that gifts and bequests for the disabled child should be directed to the trust. Beneficiary designations on all life insurance policies, IRAs, retirement accounts, etc. must be changed so that the disabled child does not inherit directly. Instead, the non-probate assets should be directed to the special needs trust.

Additional Information

For additional information regarding Special Needs Trusts and Disability Planning, call us at 908-232-7400 or click here to contact us online.

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