Estate Planning for Families with Special Needs Children - Part Three

“First Party” Special Needs and Pooled Interest Trusts

If you are the person in Scenario 2 from Part 1 of this series (the person receiving governmental benefits) and you receive a substantial inheritance outside of a properly drafted supplemental needs trust, or if you receive a settlement from a lawsuit, you (or someone acting on your behalf) may wish to protect the money or property from making you ineligible for certain governmental benefits as well.

Two of the tools that we may be able to utilize under these circumstances are First Party Special Needs [or (d)(4)(A)] Trusts, and Pooled Interest [or (d)(4)(C)] Trusts. These trusts are often referred to as “self-funded” Trusts.

With the (d)(4)(A) Trust, the beneficiary must be under the age of 65 and disabled according to SSI standards. The Trust must be self-funded, and established by a parent, grandparent, conservator, guardian, or court for the sole benefit of the beneficiary. This type of trust must include provisions that permit the State to recover funds in order to pay back the cost of Medicaid services provided during the beneficiary’s lifetime.

With the (d)(4)(C) Trust, the beneficiary must be disabled according to SSI standards, and the trust will be maintained by a nonprofit association that will “pool” separate trusts and administer them. A parent, grandparent, conservator, guardian, court, or the individual with the disability can establish the trust for the sole benefit of the beneficiary. These types of trusts should ensure that “[t]o the extent that amounts remaining in the beneficiary’s account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary…” (See 42 U.S.C. § 1396p(d)(4)(C)(iv)).

Additionally, the Center for Medicare and Medicaid Services (CMS) has indicated that transfers to (d)(4)(C) Trusts by individuals who are 65+ may suffer a penalty, and the State requires these individuals to prove that the transfers shouldn’t incur a penalty. Specific requirements should be discussed with the Special Needs Planning attorney.

If you have a child or grandchild with special needs, or you are currently receiving needs-based benefits and have received a large sum of money, please contact us to discuss how we may be of assistance. We can be reached at (203) 651-5521.