If you have a loved one with special needs — a disability that does not allow your loved one to work, for example — you are going to need to provide for his future. Two difficulties vex those who care for a disabled loved one: (i) how will he support himself after I die and am no longer able to take care of him, and (ii) how can I provide for him right now, without jeopardizing his eligibility for government benefits?
Fortunately, Florida law allows you to create certain financial arrangements, such as special needs trusts, that can answer both of these concerns. Several different options exist, however, and your estate plan needs to be individualized to your particular circumstances as well as the circumstances of your loved one. Remember — when it comes to setting up one of these trusts, every detail matters.
The Trust Option
Think twice before you give money directly to a disabled loved one, because that will be counted as income to him and could render him ineligible for need-based government assistance programs such as SSI and Medicaid. On the bright side, however, owning a house, car or personal property will not necessarily disqualify your loved one for these programs.
This state of affairs explains why a special needs trust is such an attractive option for people seeking to care for a disabled loved one. Special needs trusts must be created with great care, because strict regulations apply to them, and if they are broken then the disabled beneficiary is likely to be rendered ineligible for many government benefits. If done correctly, trust assets are considered to be the property of the trust itself, if the assets are titled in the name of the trust.
Keep in mind that only people 65 or younger can be a beneficiary of a Florida special needs trust. If your loved one is over 65, other Medicaid planning strategies may be available to preserve his assets.
Types of Property That May Be Held
Special needs trusts are often established for the benefit of disabled people to hold property such as:
- Personal injury damages that were awarded to compensate them for the accident that disabled them in the first place;
- An inheritance;
- Retirement plan income;
- A divorce settlement; or
- A life insurance policy.
Items That May be Purchased for the Beneficiary
The trustee of the trust can purchase a wide variety of goods and services with trust assets without affecting government program eligibility, including:
- Nursing care and personal care attendants;
- Medical and dental expenses;
- Rehab services;
- Medical equipment such as a wheelchair;
- Vacations; and
Types of Special Needs Trusts
Three major types of trusts are commonly used to care for special needs beneficiaries:
Third-Party Special Needs Trusts
The third-party special needs trust is the most common type of trust used to provide for the needs of a special needs beneficiary. The “third party” is typically a family member, often a parent, who funds the trust using a testamentary trust created in their last will and testament or, alternatively, a life insurance policy or other beneficiary designation.
First-Party Special Needs Trusts
Ever since the passage of the Florida Special Needs Trust Fairness Act, disabled beneficiaries have been allowed to establish special needs trusts to hold their own property. These trusts are known as first-party special needs trusts. Several different legal options are available, including (but not limited to):
- payback special needs trusts;
- litigation special needs trusts; and
- Miller Trusts;
State law generally requires these trusts to reimburse the state government for the beneficiary\s medical expenses, to the extent that they were funded by the trust, after the beneficiary dies. Since these regulations change rapidly, professional legal assistance is a necessity.
Pooled Special Needs Trusts
Pooled special needs trust are unique from first-party and third-party special needs trusts, and they are commonly used by people who either cannot find a suitable candidate for trustee, or who are leaving only a modest tum of money.
A pooled special needs trust is a trust that is administered by a non-profit organization that pools funds contributed by many donors and then establishes individual accounts for each beneficiary — sort of like a mutual fund for special needs trusts. The trustee is selected by the organization itself.
Advantages of Pooled Trusts
The main advantages of pooled trusts include:
- The trustee is likely to be familiar with the regulations governing special needs trusts in the state of Florida, and therefore distributions are unlikely to run afoul of the regulations in a manner that would harm the beneficiary’s interests.
- You can fund a pooled special needs trust even if you don’t have much money to donate to it.
Disadvantages of Pooled Trusts
- It is notoriously difficult to remove funds from a pooled trust and deposit into another trust. If you are dissatisfied with the way the trust is administered, you are stuck with it, at least to the extent of the money you have already invested in it.
- Many organizations that administer pooled trusts are quite conservative, and will only allow certain types of property to be contributed. They may refuse, for example, to own real property on behalf of the special needs beneficiary. Some people complain the pooled special needs trusts are bureaucratic and inflexible.
Keep in mind, however, that there is no law forbidding you from using more than one type of special needs trust — a pooled special needs trust for cash and a third-party special needs trust for real estate, for example.
Lorenzo Law Can Help You Establish and Maintain a Special Needs Trust
Obviously, your special needs loved one’s future is not something that you want to take lightly, and professional assistance is going to be necessary to maximize the utility of the legal benefits available to you. . Contact trusts and estates lawyer Jose Lorenzo by calling (305) 999-5411, completing our online contact form or visiting one of our offices in Coral Gables and Ft. Lauderdale. We accept clients from throughout the entire state of Florida.