The following Q&A is for general informational purposes only. Special needs planning is a complicated area of the law and this blog does not serve as specific advice to anyone. Before engaging in special needs planning you should discuss your options with a qualified special needs planning attorney and your financial and tax advisors.
Q: Why is separate planning necessary for special needs situations?
A: Connecticut Law in conjunction with Title 19 of the U.S.C. generally requires that a person drain all of their resources before the State will provide certain benefits. Generally, transferring one's assets to avoid having them counted for purposes of determining eligibility can create adverse consequences.
Additionally, the State generally requires assets provided to disabled persons by 3rd parties (e.g. parents, grandparents, etc.) to be used to reduce the amount of certain benefits to which the disabled person may be entitled.
Thus, a "normal" trust that is not specifically structured to take into account the need for governmental benefits may result in the State including those assets as an available resource that makes the disabled person ineligible for benefits for some period of time.
There are certain types of trusts, however, that can be created to help ensure that a disabled person is eligible and remains eligible to receive governmental benefits, while also benefiting from the supplemental support provided by assets in the trust.
NOTE: transferring assets to either a person or a trust may affect the transferee and transferor's eligibility for Medicaid or other governmental benefits if the transfer is made during the "look-back period." Before engaging in any time of special needs planning, the current and prospective needs of both the transferor and transferee should be taken into account.
Q: What are the different types of special needs planning available?
A: Special needs planning in the context of asset protection and estate planning can be broken down into two categories in the State of Connecticut: 1st Party Special/Supplemental Needs Planning, and 3rd Party Special/Supplemental Needs Planning. The biggest difference between the two categories is that the former involves special trusts that are funded with the assets of the disabled person, with the latter being funded by assets of a 3rd party (e.g. a parent, grandparent, etc.). Both 1st Party Trusts and 3rd Party Trusts can be created for both current recipients of certain governmental benefits, and potential recipients.
Once we have determined where the money will come from, we can identify which type of special or supplemental needs trust is appropriate for the client(s) or the client(s)' loved one, and how to best structure it within the context of the person's general estate plan as necessary.
Q: What is the difference between "supplemental" and "special" needs planning?
A: While the terms are sometimes used interchangeably, a trust that provides for supplemental needs often refers to a trust that provides for needs beyond general support. Such as trust is designed to take into account the use of governmental benefits first, and then to provide the beneficiary with supplemental support through the distribution of trust property. Often times when you see the phrase "supplemental needs trust," the trust referred to will be a 3rd party trust.
Q: When would someone practically need a 1st Party Trust special needs trust (i.e. a trust created with the disabled person's own assets)?
A: Sometimes special needs planning is not done by the parents or other care giver for any one or more of a myriad of reasons (e.g. lack of advice, procrastination, expense, etc.). The result is that they end up passing on assets sometimes unknowingly to their disabled loved ones without taking into account the disabled person's need for governmental support.
Other times, there may be a personal injury or malpractice settlement of a sum large enough to create eligibility problems for the disabled person.
There are certain 1st party special needs trusts that can be used to avoid the assets in these types of situations from being included as a countable resource.
Q: Why might a client want to plan ahead with a 3rd Party Trust?
A: Generally/currently, 3rd party supplemental needs trusts (properly drafted) are not subject to Medicaid payback provisions.
1st Party trusts on the other hand have to provide for the right of the State to recover amounts paid by Medicaid to the disabled person to the extent trust property is left over after the disabled person's death.
Additionally, 3rd-party supplemental needs trusts are subject to neither the age requirements, nor the specific disability requirements that 1st party trusts are subject to for establishment purposes.
There may be other benefits or for that matter drawbacks of each approach largely dependent upon a person's specific circumstances.
If you have questions regarding special needs planning, feel free to reach out to us and set up a consultation. You can get out contact information here.