If you have a child that is mentally or physically impaired, and receiving governmental supplement payments or benefits, such as SSI, Medicaid and other public benefits, you need to make provisions in your estate plan to protect and preserve these benefits.  If the disabled child receives an inheritance, a settlement from a personal injury lawsuit, or other lump sum payment, the continuation of their public benefit may be in jeopardy.

The most commons method to protect the child is to create a Supplemental Needs Trust.  The trust may be a stand alone trust, for the sole benefit of the disabled child, or may be incorporated in your last will and testament or living trust.   A Supplemental Needs Trust is a legal document designed to benefit a beneficiary with a disability. Federal regulations mandate the use of specific language and provisions for the trust to be properly implemented.  An improperly drafted trust will cause the governmental benefit to be lost, and the money from the trust spent down before the recipient can reapply for benefits.

A properly drafted Supplemental Needs Trust may enable a person under a physical or mental disability, or an individual with a chronic or acquired illness, to be the beneficiary of an unlimited amount of assets in trust, without those assets being considered countable assets for purposes of qualification for governmental benefits that are based upon need.   Such benefits may include Supplemental Security Income (SSI), Medicaid, subsidized housing and participation in work related rehabilitation programs.

The trust itself is designed to provide for the extra care and needs of the disabled party that are not provided for in governmental programs.  These can include medical and dental treatments that are not covered under public insurance benefits, clothing, and personal items such as televisions or computers.

Without a Supplemental Needs Trust, parents are often forced to disinherit their disabled child, often leaving assets with a non-disabled child, with a verbal understanding that they should care for their sibling.  This can pose a variety of different problems.  Funds held by a sibling for the benefit of a disabled brother or sister can be attached by judgment creditors or tax lien holders of the siblings, or could be subject to division in the event of divorce.  If the abled sibling were to die first, then their survivors would receive the money, to the detriment of the disabled person.  The use of a Supplemental Needs Trust guarantees that the funds will be held only for the benefit of the disabled person.

Recent rule changes have made the proper drafting of these trusts more important than ever.  Several challenges to improperly worded trusts have successfully denied benefits to Supplement Needs Trust beneficiaries.

If you have a disabled child, you should review the wording of your estate plan with your attorney to make sure that it is in conformance with current laws and regulations.  If you have a disabled child, and have not made plans for the future, you should contact your estate planning attorney soon.

This summary is intended as a source of general information.  If you have questions or desire additional information, please contact Ryan M. Wilson at (517) 377-0897 or rwilson@fraserlawfirm.com.