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Oxford Financial Group, LTD


Oxford Financial Group, LTD


Expert Perspective

News, research and market insights from our team of experts.


Current Issue | December 20, 2018

Essential Planning to Protect Loved Ones with Special Needs

By: Kate Borkowski, J.D., Manager, Fiduciary Officer

Certain estate planning measures are critical for people with an incapacitating physical, mental or developmental disability. These individuals need care and support not just until the age of majority, but for a lifetime. Parents need to be confident that their disabled child will be financially provided for well after they are gone.

Oxford Financial Group, Ltd. Managing Director, Deb Bennett, has years of experience assisting such families with this important planning. For one such client, Deb offers, "It was important for my client’s child to have a planning vehicle that provided for his needs without disqualifying him from receiving government assistance." The client's child is also unable to receive and manage a lump sum of any amount during his lifetime. Deb explains, "For this child, professional management of his funds will be required for his lifetime." One such vehicle to accommodate these concerns is called a Special Needs Trust.

A Special Needs Trust
A Special Needs Trust, or a Supplemental Needs Trust, is created for the benefit of a disabled person who is qualified to receive governmental benefits such as Medicaid, Supplemental Security Income, food stamps or housing. To receive these benefits, the government requires that the person meet certain requirements. In the case of Medicaid, the person can have no more than $2,000. In addition, the government will look at what transfers of property the person has made within the last five years to determine eligibility. With a Special Needs Trust created by a third party, the non-disabled third party can transfer as much property as desired to a trust for the benefit of the disabled person. Such a trust will be ignored by the government to determine eligibility as long as the trust qualifies as a Special Needs or Supplemental Needs Trust.

A Special or Supplemental Needs Trust provides that the Trustee has discretion to distribute any amount of income or principal to or for the benefit of the disabled person as long as the distribution does not take the place of the governmental benefit. For example, if the Trustee makes a distribution to pay for the disabled person's medical care, then the distribution would make the disabled person ineligible for Medicaid. If, however, Medicaid only provided for a certain amount to be paid for the medical care, then the distribution can be made to provide for the amount not covered by Medicaid. Another example would include when Medicaid only covers a portion of certain accommodative equipment, such as a non-motorized (versus motorized) wheelchair. The trust could purchase a motorized wheelchair by paying the difference between the two.

For What Can It Be Used?
The Special or Supplemental Needs Trust can be used for any other purpose of any amount that is not covered by the governmental benefit. Examples include a TV, computer, cell phone, travelling and entertainment, just to name a few. A Special or Supplemental Trust could hypothetically hold $1,000,000 for the benefit of the disabled person and the person could still qualify for governmental assistance. Upon the death of the disabled person, the proceeds could be distributed to another trust(s) or outright to other beneficiaries or non-disabled persons.

Trustee Requirements
A Special or Supplemental Needs Trust requires a Trustee who has the ability to maintain meticulous records and who understands the sometimes onerous duties of this special type of Trustee. Such a Trustee is a corporate trustee, which includes a bank or trust company or certain organizations that manage master trusts that pool the money of all of the beneficiaries, which include The ARC Master Trust and Indiana Legacy.

In addition, in December 2014, the ABLE Act was passed, which is similar to a college 529 plan. Called 529A plans, ABLE accounts are tax deferred accounts created for the benefit of the person with special needs that will not jeopardize eligibility of governmental benefits. Friends and families can contribute as much as $14,000 a year without risking the loss of federal benefits. Social security income, ABLE accounts and Special Needs Trust(s) can, and should, all be utilized in planning for a person with special needs.

A Special or Supplemental Needs Trust requires specific technical language to qualify as such a trust. Your Oxford team of advisors can coordinate the appropriate attorneys and experts to assist in this area. Further, The Trust Company of Oxford has deep expertise in the management of such types of trusts. Ask your Managing Director today if a Special Needs Trust is appropriate for your family situation.