If you have a child or spouse with special needs, ensuring that your child or spouse will have adequate access to financial resources throughout his or her lifetime is likely to be one of your top estate planning priorities. Fortunately, there is an estate planning tool that is designed specifically to help in this situation. This tool is known as the special needs trust.
What Is a Special Needs Trust?
A special needs trust is an estate planning tool that is used to provide financial resources to an individual, typically a minor or adult child or an aging spouse, who has special needs as the result of a disability. While other estate planning tools can achieve the same purpose in concept, the special needs trust – also known as a supplemental needs trust – offers unique benefits that other tools do not.
What Are the Benefits of Forming a Special Needs Trust?
Like other types of trusts, one of the benefits of forming a special needs trust is that assets that are placed into the trust are kept out of probate. Probate entails unnecessary costs and has the potential to lead to a wide range of issues; and, for these reasons (among others), it is often advisable to focus on probate avoidance as an aspect of the estate planning process.
Importantly, special needs trusts also offer certain benefits that other types of trusts do not. Specifically, when formed and utilized properly, special needs trusts preserve the beneficiary’s (i.e., your child’s or spouse’s) eligibility for needs-based government benefits – including Medicaid and supplemental security income (SSI). Since these are needs-based programs, receiving a lump-sum inheritance can result in loss of eligibility. However, placing assets into a special needs trust avoids this issue, and it allows you to transfer your financial resources to your child or spouse while also allowing him or her to continue to qualify for government assistance.
Who Can Form a Special Needs Trust?
Anyone can technically form a special needs trust in Florida. However, at the time that the trust is formed, the beneficiary must generally be age 65 or younger. While special needs trusts can be utilized in a wide variety of scenarios, as mentioned above, they are most often used to provide financial support for adult children or spouses who are eligible to receive needs-based government benefits and who are unable to earn sufficient income independently.
How Will a Special Needs Trust Work with the Other Documents in Your Estate Plan?
When creating a supplemental needs trust, it is important to consider how the trust will work with the other documents in your estate plan. Estate plans need to be cohesive, and separate planning documents cannot be inconsistent with one another. So, for example, if you establish a revocable trust (or “living trust”) as your primary estate planning document and also create a special needs trust to provide for your disabled child or spouse, it will be necessary to ensure that each trust is funded with separate, clearly identifiable assets.
Additionally, it is important to ensure that aspects of your estate plan will not inadvertently result in assets being transferred to the beneficiary of your special needs trust, thus rendering him or her ineligible for needs-based government benefit programs. For example, if you overlook certain assets during the estate planning process, these assets will fall into your probate estate, and this means that they could potentially be transferred to your child or spouse by default. While this is a concern, it is a concern that can be easily avoided with the help of an experienced planning attorney.
What If Your Child’s Needs Change Over Time?
A key aspect of a special needs trust is that it is an irrevocable trust. Theoretically, this means that once you create a special needs trust, the trust must exist in perpetuity until its assets have been exhausted. However, practically speaking, there are ways that special needs trusts can be modified or replaced, and a Florida law, enacted in 2018, provides additional options for doing so.
Furthermore, while the options for modifying or terminating a special needs trust may be somewhat limited, it is possible (and fairly common) for parents and spouses to contribute additional assets to their special needs trust over time. As your personal wealth grows, you can continue to make estate planning decisions with your disabled child’s, spouse’s, and other beneficiaries’ needs in mind, and you can continue to fund your special needs trust as you deem appropriate.
What Other Factors Should You Consider When Forming a Special Needs Trust?
When making estate planning decisions in relation to the needs of a disabled child or spouse, it is important not to focus solely on creating a special needs trust. For example, you will most likely need to consider your options with respect to guardianship (and guardianship alternatives) as well.
Guardianship is a legal relationship pursuant to which one person (the “guardian”) makes decisions on behalf of another person (the “ward”) who is unable to manage his or her affairs independently. A guardian can be granted authority to make decisions with regard to the ward’s finances, healthcare, or both, and the terms of the guardianship can be spelled out in advance during the estate planning process. When appointing a guardian, it is also possible to set aside funds for the guardian to help cover transportation and other expenses.
In some cases, guardianship will not be necessary, but it will still be necessary to make provisions for another person to assist your child or spouse in your absence. There are a number of less-restrictive alternatives to guardianship, and each is best suited to a different set of circumstances.
Discuss Forming a Special Needs Trust with an Experienced Planning Lawyer at Beller & Bustamante, P.L.
If you have questions about special needs planning in Florida, we encourage you to schedule an appointment with one of our skilled lawyers. To request an appointment at your convenience, call us directly or inquire online today.