How to Develop a Special Needs Trust in Indiana

Some people are born with a disability, whereas others become disabled later in life. Either way, physical and/or mental limitations have an extremely negative impact on a person’s ability to earn income or manage basic, day-to-day activities without support. As the close family member of a disabled person, you naturally want to provide financial support.

However, even modest contributions to a disabled person can result in disqualification for essential government benefits, such as Medicaid and Supplemental Security Income. A special needs trust (SNT) drafted with support from a trust lawyer can solve this problem. A trust functions as a separate entity to hold assets so that their value is not legally in the beneficiary’s possession.

Primary Goals of Special Needs Trusts
Preservation of a disabled person’s access to government benefits is the top goal of an SNT. If you do not engage in special needs estate planning, then any inheritance that passes to your disabled minor or adult child could cut off government payments for medical care, housing, and other services.

This outcome would never be your intention, especially since the value of government benefits over a person’s lifetime would likely exceed even a considerable inheritance. A properly established and managed SNT will comply with government regulations and allow you to enhance the life of a disabled person with funds to cover needs not paid for by the government.

An SNT could provide payment for:

• Companions and sitters
• Vision care
• Dental care
• Medical services not covered by Medicaid or Medicare

Top Considerations When Setting Up a Special Needs Trust

• Has the disabled person received any assets yet?
• Do you need a third-party or first-party SNT?
• Do you want other family members to be able to donate to the trust?
• Who will be the trustees?
• Will the trust be required to reimburse Medicaid after the beneficiary’s death?

Consulting a trust lawyer knowledgeable about special needs estate planning will help you work through these questions. Legal advice is important due to the critical need to keep a trust fund from interfering with government benefits.

Third-Party Special Needs Trust
A third-party SNT is set up by a grantor who is not the special needs person. Grantors, or settlors as they are also known, can be parents, grandparents, siblings, or other concerned individuals. The assets that go into the trust can come from:

• Monetary gifts to the trust
• Proceeds from life insurance
• Redirection of inheritance into the trust

Parents who wish to pass an inheritance through a trust to a disabled child will do so through their will or as part of an inter vivos trust (living trust). Your will would explain how to form the trust and direct funds or other assets into it when the time comes. If you plan to use a living trust to avoid probate, then a third-party SNT may be included as a sub-trust within the living trust.

If multiple people in your family want to contribute to the trust, then you could establish a stand-alone, third-party SNT. This approach allows the trust to come into existence immediately and collect donations from anyone who wants to help the disabled person cover future expenses.

When the beneficiary of a third-party SNT passes away, any leftover funds may be distributed according to the terms of the trust. The law will NOT require that remaining funds be sent to the state’s Medicaid agency.

First-Party Special Needs Trust
Unhappily, an accident or illness could leave a previously healthy person disabled. In this situation, the disabled person may need a first-party SNT. As of December 2016, federal law allows a mentally competent disabled person to create and benefit from a first-party SNT. The disabled person may then shift assets into the trust.

First-party SNTs could work for:

• A disabled person who receives an inheritance
• Someone who owns assets but became disabled

To create a first-party SNT, the government must officially recognize your disability status, and you need to be under the age of 65. The trust will only hold the disabled person’s assets and not serve as a receptacle for funds from other family members.

The law will obligate you to set this trust up as irrevocable so that you can collect government benefits. Upon the beneficiary’s death, any remaining funds MUST be given to the state’s Medicaid agency.

When is the right time to consult with a criminal lawyer?

Help With Estate Planning in Indiana
When making financial decisions for yourself or for a disabled family member, you’ll encounter questions about family law in Indiana and estate planning. At Webster & Garino, LLC, you can consult an attorney who has experience guiding families through these important, long-term decisions.

You should pay special attention to the Medicaid payback requirement when forming a trust and selecting assets to place in the trust. Legal advice could help you choose an appropriate type of trust that will not interfere with the beneficiary’s eligibility for government benefits. By doing the hard work of planning for a disabled person’s future, you can gain peace of mind that the beneficiary will have access to all of life’s essentials.

Don’t hesitate to get in touch with Webster & Garino, LLC for answers about your trust formation and administration questions today. Call 317-565-1818 or email the office to schedule an appointment.