For families with disabled minor or adult children, the focus of divorce settlement or litigation often shifts from property division and alimony awards to adequately meeting the post-divorce special needs of the disabled family member. These needs can be quite cost-intensive and either not covered or not fully covered by SSI and Medicaid services. One of the most important financial planning tools used by families with sufficient financial means is the special needs trust.
Early in the divorce proceedings, careful identification of both short-term and long-term special needs can assist divorcing parents in developing a financial plan to meet those needs. These special needs can run the gamut from caregiving to educational, medical, housing, and transportation special needs.
A special needs trust is established via a written trust document that must be in compliance with certain federal laws and regulations to qualify as a special needs trust. There are several different types of special needs trusts, so careful investigation is necessary to determine the right type of special needs trust for each person. Generally speaking, special needs trusts are set up with a trustee who makes all decisions about the use of the trust assets on behalf of the trust beneficiary. When properly established and administered, the trust’s payment for services and benefits to the beneficiary does not count as income that could disqualify the beneficiary from eligibility for means-tested programs like SSI and Medicaid, subsidized housing, and vocational training programs.
Special needs trusts can be funded from the beneficiary’s own funds, a family member’s funds or any other third party’s funds. They can be particularly useful to protect SSI and Medicaid eligibility when, for example, a disabled person is about to receive an inheritance or a settlement that destroys their SSI/Medicaid eligibility. The inheritance or settlement funds can instead be placed in a special needs trust to be used at the discretion of the trustee to cover the beneficiary’s additional living expenses. So long as no trust monies are ever paid directly to the beneficiary, the trustee’s usage of the special needs trust monies to pay third parties for goods and services for the beneficiary will not be counted as income to the beneficiary.
However, as with the ABLE account discussed in two prior blogs, certain types of special needs trusts may include a Medicaid payback provision. This means that upon the death of the beneficiary, funds remaining in the trust can be claimed by Medicaid to reimburse Medicaid for monies spent on behalf of the beneficiary during his or her lifetime since the creation of the special needs trust. This payback requirement could cause problems for caretaker survivors of the beneficiary if, for example, a home was purchased by the trust where the beneficiary and his caretaking family resided together. Under the Medicaid payback provision, Medicaid could claim the home and the surviving family members could end up homeless. Before using this particular type of special needs trust, a special needs trust expert should be consulted to determine if another type of special needs trust without a Medicaid payback provision might be a better choice.
The Law Office of Jeanne Coleman has assisted families with disabled members through the divorce process for over twenty-five years in the Tampa Bay community. Call her office today for a consultation concerning any family law, social security disability, or dependency issue. Jeanne can assist you in focusing on a single issue or provide overall representation in your case.