You may have heard of “special needs” trusts, particularly if you have a disabled child. A third-party Supplemental Needs Trust (SNT) often is considered a variation of this type of trust. However, in Pennsylvania, the third-party SNT grew out of a number of court cases as a way of helping someone on government means-tested benefits without making them ineligible for those benefits, which often include Supplemental Security Income (SSI) and Medicaid (or Medical Assistance in Pennsylvania), by providing additional funds and resources that won’t count against the individual’s eligibility. The benefits have strict financial requirements that can make estate planning when a disabled child is involved difficult, to say the least.
Due to these difficulties, various types of trusts and other possibilities, some more drastic in nature, are considerations when a disabled child (regardless of age) generally would be included in an estate plan. Parents could decide to disinherit the disabled child but often do not feel comfortable with this simple but seemingly harsh solution to protecting the person’s means-tested benefits. One common consideration is to leave share that the disabled child would inherit to another sibling, for example, with instructions that the sibling is to use this for the benefit of the disabled child. The inherent danger with this idea is that the parent’s wish is not legally binding, which is why it won’t count against the person who is disabled but also provides no guarantee that this plan will succeed as you had hoped. Also, if the other child has debts, the inheritance intended for the disabled child could end up benefitting the second sibling’s creditors, instead.
This may leave you looking upon the idea of disinheriting your disabled child while relying on someone else’s judgment and circumstances to allow your hope that this share of your estate will be used as you had wished to be too risky. If you really do not want to disinherit your disabled child entirely, then you need to explore other options. You could decide on an estate plan that simply leaves the share to your child who receiving SSI, Medical Assistance, or similar benefits, despite the possible consequences regarding such means-tested benefits. The most obvious of these consequences include a likely disqualification of the disabled child for those benefits for some period of time. In the end, there is no gain, only loss, with this plan because the inheritance, at best, merely replaces the government assistance. When you put together your estate plan, you are likely to want to find a better alternative than this option provides.
Particularly when you work with someone who has experience in estate planning, you probably will find out that better options do exist. One of these may be the third-party Supplemental Needs Trust in Pennsylvania. Although this can be hard to make effective when your estate is quite small, it is a powerful tool for helping your disabled child when your estate has enough resources for it to be cost effective and feasible to run in order to carry out your intent.
Importantly, this SNT can be set up in a way that will not jeopardize the government entitlements that the child receives while, at the same time, being available to supplement these benefits for an improved quality of life. Great care must be taken when you plan to use this type of trust because your intent has to be implemented through the document that creates the trust to accomplish your goal of providing additional benefits for your disabled child without putting the any of the other benefits from the government at risk. In the next post, we will look at some key points to remember your estate plan will include a third-party Supplemental Needs Trust.