SENIOR SELECTIONS 2020 February - Protecting Family Members With Special Needs

Saturday, February 22, 2020

Sally Jones is proud of her son, Eric (not their real names). He has two jobs, and he’s good at what he does. He’s quiet and a bit shy, but conscientious about his work. He lives with friends, but he and his mother still see each other often. She helps him when he needs it, and he helps her with some things she can no longer do for herself. Sally is in her 80’s. Her son is in his 60’s, and he has special needs.

Sally has no other children, and she’s widowed. She wanted to leave Eric an inheritance but worried that a large sum of money would cause him to lose the financial and medical benefits he receives.

Fortunately, there ways to prevent that.

When a parent of special needs children come to see me, we talk about ways to protect loved ones who have disabilities, without causing them to lose their needs-based benefits.

Contributing to a Pooled Trust

One option is to contribute to a “pooled trust.” Parents, family members or others can deposit money on their loved one’s behalf with organizations like The Arc of Indiana. Pooled trusts maintain separate accounts for each beneficiary, but invest and manage the money as part of a larger “pool” of assets.

If a pooled trust account is created with The Arc of Indiana, those funds are then distributed to the beneficiary over his or her lifetime. Government benefits continue as well. And even if money contributed to the pooled trust for one beneficiary “runs out,” The Arc of Indiana has a way to continue payments for that beneficiary’s lifetime.

“Private” Special Needs Trusts

Another option is to create a private Special Needs Trust (SNT), specifically for one beneficiary. There are two types – a “first-party” SNT or a “third-party” SNT.

“First-Party” SNT

The beneficiary’s own money is used to create “first-party” SNT’s. The funds might come from the settlement of a personal injury or medical malpractice lawsuit, from money the beneficiary has saved, or from Social Security back-payments. Creating a first-party SNT can keep the beneficiary from losing benefits for having “excess” funds. Money in the first-party SNT can then be used to supplement the recipient’s income.

One down-side to the first-party SNT is that funds left over at the beneficiary’s death may be subject to claims by the State of Indiana. The state has the right to recover whatever it spent in benefits from leftover funds in the SNT.

“Third-Party” SNT

A third-party SNT is one created and funded by a family member of the beneficiary. This is what Sally chose to do for Eric. We arranged for Eric’s inheritance to be placed in a third-party SNT at Sally’s death.

Like the first-party SNT, this will give the loved one additional funds to supplement the income from work and government benefits. It won’t cause him to lose any benefits. Best of all, with the third-party, family-member-funded SNT, money remaining in the SNT when the child dies doesn’t have to go to the State of Indiana. It can go to another family member or charity.

To Learn More

The rules regarding Special Needs Trusts and Pooled Trusts can be complicated. And there are costs related to setting up these trusts. To learn more about Pooled Trusts, especially The Arc of Indiana, go to arcind.org.

To learn more about private Special Needs Trusts, speak with an attorney who focuses on elder law and/or special needs.

This overview is provided as a public service, not as legal advice to any individual. Be sure to speak with qualified professionals who can answer your questions, analyze your situation and give personalized advice.

Michael Goss is a Greencastle attorney who focuses on elder law.