focus of this article is on estate planning for families who want to provide
for a disabled child (or another disabled family member), and whose wealth is
not likely to be sufficient by itself to pay for all of the child's lifetime
support, and who thus want the child to receive all public benefits to which
he or she may be entitled.
Management and Protection. Who
will handle the disabled child's financial affairs, including acting as
advocate for their rights to public benefits such as SSI and Medicaid, when
the parents are no longer able to do so?
If no planning has been done in one or both of
these areas, a Court-supervised guardianship may be the only alternative.
However, guardianships should be seen as the solution of last resort, to
be avoided if at all possible.
Don't Overlook Estate
Planning for the Rest of the Family
Options for Providing
for a Disabled Child
outright transfer to child
Because the child will be the owner of the bequest, the
property will be immediately vulnerable to reimbursement claims by the state, if
the child was previously receiving public benefits. Direct ownership may also render the child prospectively ineligible for
future needs-based government
assistance programs until the bequest has been totally spent.
transfer to child using a third party
The "indirect transfer" technique involves transferring property intended
for the disabled child to a third party, such as a sibling or other family
member, with the informal understanding that the third party will use the
property to provide for the needs of the disabled child.
This in an inherently risky maneuver,
because there can be no assurance that
the disabled child will ultimately receive any of the property. Since by definition the
disabled child can have no legal claim to the assets, the bequest will
be treated as the property of the third party.
Even if the third party is totally trustworthy, there is
always the unavoidable risk
that he or she may die, be divorced, acquire a creditor as the result of a lawsuit, or go into bankruptcy.
In any of these events, the property will likely be involuntarily lost.
to a trust for the disabled child
While a trust in theory may protect the property for the
disabled child, not all trusts afford the same degree of
protection. In the context of estate planning for a disabled
child, these differences can become crucial. Choices
among trust models include:
type of trust would require the trustee to pay the trust’s income or
principal, or both, to the disabled child, with no discretion to retain
the property inside the trust.
A mandatory distribution-type of trust would be inadvisable for a disabled child, since it does
not allow the Trustee to withhold making distributions if they are not needed by
the child. The income and/or
principal would be treated as an available resource to the child, and would
disqualify the child from all needs-based government programs until the trust
fund was exhausted.
A trust of this kind directs
the trustee to make distributions of income and/or principal as needed to
provide for the disabled child’s "support" or "maintenance." Although
almost all trusts for children routinely contain such terms, they are not
recommended for a trust intended to benefit a disabled child, since these
very words will likely make the trust assets be classified as an
"available resource" and thus disqualify the child from needs-based
supplemental needs trust
This kind of trust directs the
trustee to make distributions for the child's benefit, but it allows the trustee
complete discretion as to the amount and timing of such distributions. The
stated purpose of this trust is that trust property should only supplement
-- but not supplant -- the public benefits for which the child is
Because the trust does not
mandate distributions, or even establish a fixed standard for distributions
(e.g., "support" or "maintenance"), it will not be treated as an available
resource for government-program eligibility purposes.
Discretionary Supplemental Needs Trust
the three trust models, the Discretionary Supplemental Needs Trust will best
shield family assets intended to benefit the disabled child from state claims
for reimbursement, while at the same time allowing the trustee to provide for
any needs of the child that are not covered by government programs.
Pennsylvania courts have consistently upheld such Discretionary Supplemental
Needs Trust from state attack, finding that a discretionary trust
funded with assets contributed by the child's parent or other third parties,
the trust property is clearly intended only to
public benefits, does not count as a resource of the disabled beneficiary, and
the trust is not liable to repay public benefits provided to the beneficiary.
Designing and Administering
a Discretionary Supplemental Needs Trust
for a Disabled Child
Using a lifetime trust has certain advantages. For instance, it can ensure
that the disabled child will begin to receive benefits at the time parental
support stops, whether that occurs upon the parent's death or earlier in case of
the parent's lifetime incapacity. \
you appoint as the trustee or trustees of a Discretionary Supplemental Needs
Trust? If the Trust will be established in the Will of the second
parent to die, by definition neither parent will be available to serve. One or
more other persons or a trust company will have to be named to serve either
individually or together as the initial and successor trustees.
talents are required of trustees of a Discretionary Supplemental Needs
Trust. They must not only be able and willing to serve as trustees in the
traditional sense, such as prudently managing and investing the trust
property, but they must also be committed to acting proactively as the
disabled child's protectors and advocates.
example, the trustees should be committed to spending time regularly with
the disabled child and his or her caregivers to identify the child's current
needs, to investigate all sources of private funds, such as health
insurance, and public benefits that may be available to meet those needs,
and to ensure that the child applies for and receives all the public
benefits to which he or she is entitled.
individual trustee thus should have both the time and the talent
to carry out these tasks. A trust company can be appointed
to serve as a co-trustee with the individual, or it can be named as
an alternate or successor trustee to serve if the individual trustee is or becomes unable or
unwilling to serve.
Steps to Take in Estate
Capacity is not an all-or-nothing
condition. An estate plan intended to
benefit a child who, with some supportive services, can live independently in
society may differ significantly from a plan for a child who will always need
Planning With the
Disabled Child's Own Assets
By contrast, if the assets
sought to be protected belong to the disabled child (for instance, the
funds represent a bequest that is payable directly to the child from the
estate of a deceased family member, or are the proceeds receivable from
the settlement of a personal injury action or insurance claim that arose
from an accident or other event that caused the underlying disability),
a self-settled type of trust, commonly referred to as a Special Needs
Trust, is the vehicle of choice.
Since the Medicaid
and SSI eligibility protection offered by
a Special Needs Trust is based on federal
statutory law, specifically 42 U.S.C. § 1396p(d)(4)(A) and §
1396p(d)(4)(C), it is essential that the Special Needs Trust be designed
and administered in conformity with the statute's requirements.
Special needs trust and Supplemental needs trust
"Payback" or "d4A" Special Needs Trust must provide that upon the
death of the disabled child (or earlier termination of the Trust), DPW
must first be reimbursed up to the total amount of medical assistance
that will have been paid out on behalf of the child, before anyone
else can receive any part of the remaining Trust property. (As
noted below, a Pooled Trust has a somewhat different rule.)