| Probate & Trust


Few would argue with the notion that estate planning always requires careful consideration and planning, but when an estate plan includes a disabled beneficiary, even more care is needed with a special needs trust.

Many government benefit programs, including Medicaid and SSI, are asset tested, meaning that beneficiaries of those programs cannot have countable assets in excess of a certain amount in order to gain and/or maintain eligibility for these programs.  Due to this, family members often believe that the disabled individual in question cannot be provided for through an estate plan. Fortunately, estate planning has evolved, and through the use of special needs trusts, disabled beneficiaries can be provided for and still maintain eligibility for asset tested government benefit programs.  Specifically, if an individual is disabled within the meaning of Social Security laws and is the beneficiary of a properly drafted special needs trust, the assets of that trust will not be counted as an available asset for purposes of determining government benefits eligibility.  The assets of a special needs trust can be used to provide the beneficiary with more financial freedom and can be used for a broad range of goods and services.  Examples of special needs trust expenditures include furniture, appliances, cable and internet, computers, vehicles, travel and home improvements for the disabled individual.

There are two main categories of special needs trusts: those created with the beneficiary’s own assets (known as self-settled or first-party trusts) and those created with someone else’s money (known as third-party trusts).

A self-settled special needs trust is funded with the assets already owned by the individual or assets that the individual would otherwise receive directly, such as from an inheritance, Social Security backpay award, or a personal injury settlement.  In exchange for the assets of a self-settled special needs trust not being included in the disabled individual’s countable assets, the self-settled trust must include a provision requiring that the state agency paying out benefits be paid back upon the beneficiary’s death for the services provided to the beneficiary during his or her lifetime, to the extent that funds remain in the trust.

Special needs trusts may also be established for the benefit of disabled individuals and funded with the assets of third parties (i.e., a donor creates and funds this trust with the donor’s assets).  These third-party trusts are typically established as part of the donor’s estate plan to hold and manage an inheritance for a disabled individual.  A third-party special needs trust can be the beneficiary of life insurance policies and can own real estate and investments, among other assets.  Third-party trusts provide wonderful opportunities in planning for a special needs family member, whether the individual is a child or an adult. Upon the death of the beneficiary of a third-party special needs trust, the remaining assets in the trust can pass to the donor’s other relatives or beneficiaries. Unlike first-party special needs trusts, there is no payback requirement. This factor is one of the key advantages of planning ahead with a third-party special needs trust.

Both self-settled and third-party special needs trusts can be established as private trusts or as part of a pooled trust.  In the context of a private special needs trust, a family member or other individual routinely serves as trustee to oversee the administration and distribution of trust assets during the beneficiary’s lifetime.  A pooled trust, on the other hand, holds the resources of many disabled beneficiaries in individual sub-accounts for each beneficiary. The sub-accounts in a pooled trust are established under one master trust, and there is one trustee appointed to administer that master trust, and in turn, all sub-accounts established under it.

Pooled special needs trusts offer a number of advantages including low funding requirements and administrative fees, and greater investment opportunities.  Commonly, the assets in a pooled special needs trust are managed, administered and distributed by a non-profit association that works in conjunction with the trustee.  In Wisconsin, the primary pooled special needs trust administrator is WisPACT (Wisconsin Pooled and Community Trust).

The determination as to whether a pooled trust or private trust is more beneficial is made on a case-by-case basis, as no two beneficiaries or cases are the same.  A pooled special needs trust is often the best choice if a disabled individual does not have any family or friends able or willing to serve as trustee.  A private trust, on the other hand, may be more beneficial in instances where a disabled individual has a family member or friend who is well-versed in government benefit programs and willing to serve for little or no compensation.  Either way, planning ahead with a special needs trust is important to maximize the options available and to ensure each case is given the careful consideration it deserves.