Wealth Insights

Special needs trusts: Planning for loved ones

Caregivers can rest easier knowing the financial needs of loved ones are covered.

A car accident.

A long-term diagnosis.

Malpractice in a medical setting.

When your loved one is facing a physical or mental disability, the primary focus is on their care and managing the medical and/or emotional challenges. Planning for their long-term financial future may be something you intend to get to, eventually.

Michelle Wieneke, Regions Private Wealth advisor in St. Louis, has specialized in special needs trusts for much of her career and understands the hurdles and hesitation parents may face when it comes to planning for the future needs of a child with disabilities.

“Often times when I am talking to families, they are overwhelmed with caring for their child. It can be hard to even think about what may happen when they are gone or if they can no longer take care of their loved one in the future,” Wieneke shares.

Exploring a special needs trust

A special needs trust can help provide financial security and maintain a high quality of life for people with disabilities.

Designed to cover the expenses that often aren’t fully covered by insurance or government disability programs, but that may enhance quality of life, a special needs trust can be a valuable resource for caregivers of individuals with disabilities that may deeply impact their lives.

This may include physical or mental therapy, computer equipment, transportation, customized living accommodations, etc. More importantly, a special needs trust can help protect eligibility for government benefits like Medicaid or Supplemental Security Income (SSI).

“Families don’t need an elaborate plan, but they do need a plan,” notes Wieneke. “If an individual receiving SSI and/or Medicaid were to inherit money, they may lose eligibility for those benefits. With proper planning, benefit eligibility isn’t impacted by a financial windfall such as an inheritance.”

Wieneke spends time really getting to know and understand the unique situation of each of her clients. That includes understanding the benefits they may be receiving, current living arrangements, and what kind of help they have or may need.

“Understanding the long-term financial goals of clients supporting a loved one with developmental, physical, or mental disabilities enables me to provide appropriate guidance and insights on the various options in special needs trusts,” says Wieneke.

A long-term plan sometimes involves a custom-built or heavily renovated home to accommodate the individual with special needs. In these cases, Wieneke enlists the help of the Regions Natural Resources and Real Estate team when finding just the right land or existing home that works for the individual and their caregivers.

Understanding your options

There are two primary types of special needs trusts: Self-settled special needs trusts and third-party special needs trusts. In addition, there is a third type that may be appropriate under unusual circumstances called the sole-benefit special needs trust.

Self-settled – or first-party trusts – are taken out by the beneficiary or someone acting on their behalf with the beneficiary’s funds for the purpose of retaining or obtaining eligibility for public benefits.

“This type of trust is common when a beneficiary settles a lawsuit or receives a direct inheritance,” notes Wieneke. “When the beneficiary passes away, there is a payback to Medicaid for any outstanding liens and if there are funds remaining after the lien is paid, the trust specifies who will receive those funds.”

Third-party special needs trusts are established by someone other than the person with disabilities as part of their estate planning. The grantor is establishing a special needs trust for the benefit of the disabled person.

Wieneke points out that with this type of trust, there is not a required payback to Medicaid after the disabled beneficiary passes away.

“These funds were never the beneficiary’s assets so the funds should not be used to pay back the beneficiary’s lien,” she explains. “The special needs trust will specify who the remainder beneficiaries are in these trusts.”

There is a third type of special needs trust, but it is only used in unusual circumstances. Under federal Medicaid law, someone applying for Medicaid long-term care benefits can transfer their assets into a special needs trust for the sole benefit of a person with disabilities. Under this type of trust, that transfer would not disqualify the Medicaid applicant from receiving benefits.

Special needs trusts: Planning is key

“Planning is key,” notes Wieneke. “Depending on the individual’s disability, not being disqualified from their government benefits is so important. A special needs trust gives someone with a disability the opportunity to improve their quality of life without disqualifying them from their government benefits.”

Wieneke recalls a case where she was brought in to set up a self-settled/first-party special needs trust for a disabled individual who had the mental capacity of a 3-to-4-year-old, and was living in a group home. When this individual’s only surviving parent passed away, they inherited all of the assets.

“Setting up the court-approved special needs trust ensured that this individual would not be disqualified from Medicaid and SSI,” notes Wieneke. “Because the parents did not establish a trust before their passing, Medicaid required reimbursement. That could have been prevented with proper estate planning.”

John Lynn, Regions Private Wealth leader in St. Louis, reiterates the importance of having a plan and the benefits of having a specialized wealth advisor to provide the advice and guidance to navigate the nuances of special needs trusts.

“Developing a strategy to provide financially for a young or adult beneficiary with disabilities can bring peace of mind and help ensure that his or her needs — as well as those of the rest of the family — are met,” Lynn says.

“This is a nuanced area that requires experience to administer properly, and advisors like Michelle allow us to effectively manage these relationships. It feels good to be able to provide tailored advice and guidance to our special needs trust clients so they can live the most fulfilling lives possible.”