Clients with disabilities or other special needs have a few options when it comes to creating trusts that can improve their life. Oftentimes these individuals receive governmental benefits for their health and maintenance. Typically, these programs first require that the individual spend their own money before expending any of the government’s. In these situations, individuals with special needs who do have substantial money of their own can create a medicaid pay-back trust that allows them to enjoy the health and maintenance benefits of the government programs while using their own money for supplemental support. Put simply, the beneficiary of such a trust can use the trust monies for things not covered by governmental assistance programs and still enjoy those program’s benefits. Whatever monies are not used at the time of the beneficiary’s death would then go to the government program.
The trust described above is designed to protect the assets of the individual with special needs. But what about individuals who want to create a trust to benefit a loved one with special needs? In that instance, the settlor (the person establishing the trust) can name the individual with special needs as a beneficiary of the trust. The trust would provide that its money would pay out to the beneficiary for their supplemental support. At the time the individual with special needs dies, 50% of the remaining trust money would go to the government program, and the other 50% of the money would go to another beneficiary named in the trust.
Yet another option exists for individuals seeking to benefit loved ones with special needs. Called a “wholly discretionary trust,” these trusts give the trustee 100% discretion as to whether the named beneficiary receives any money from the trust at all. The advantage of the wholly discretionary trust is that upon its termination, 100% of the monies remaining in the trust will go to a named beneficiary, and 0% goes to the government program. It is essential that the relationship between the trustee and the beneficiary with special needs is a good one in order for wholly discretionary trusts to work the way they are intended.
Please contact us if you would like to set up a trust that accomplishes any of the goals summarized above.