We recently met with new clients after they moved from another state. The mother was concerned about her estate planning, especially concerning her disabled son, after another local attorney told her there was “no such thing” as special needs planning in Florida. The special needs issue arose for this family after the son became a paraplegic as a result of an automobile accident.
Special needs planning is indeed “special,” and often overlooked by attorneys who have not obtained special training to ensure they provide proper planning for those with special needs.
A special needs trust allows the funds in the trust to be used for the benefit of the disabled beneficiary, without causing the beneficiary to lose access to any public benefits programs the beneficiary may otherwise entitled to receive. Such trusts have special requirements for properly drafting the trust document, restrictions on the types of funds that can be contributed to the trusts, and special rules for administering the special needs trust.
Our firm, and our attorneys, have been involved with special needs planning for decades, and have engaged in many plans specifically for special needs clients and their families. This particular family’s issues were fairly complex. There was a first party special needs trust that had been established by the court in their previous state of residence, and funded with the proceeds from a lawsuit filed against the person who caused the accident and the injuries to our new client. The mother wanted to establish a third party special needs trust to leave her estate to her son in a manner that would not cause him to lose his access to Medicaid for medical treatment, and any other public benefits programs for which he might qualify now, or in the future.
Obviously, in the situation our new clients found themselves, it was entirely appropriate for the mother to establish a third party special needs trust for her son, while maintaining the first party special needs trust established by the other state’s courts. Both trusts provide that the son is the beneficiary of the assets in the trusts, but in both cases, the trustees of those trusts are prohibited from taking any actions that would cause the son to lose access to any public benefits programs for which he otherwise was eligible to receive.
The principal difference between the first party special needs trust and the third party special needs trust is the ultimate disposition of the assets in the trust at the beneficiary’s death. The statute that allows the establishment of the first party special needs trust (referred to as a d4A trust after the statute), requires that any funds remaining in the trust at the beneficiary’s death must be distributed to the Medicaid program to reimburse the program for any benefits paid out to the beneficiary. Alternatively, the funds can be paid over to a “pooled trust” for the benefit of other disabled persons who are receiving public benefits.
The statute authorizing the use of the third party special needs trust allows the person who establishes that trust to provide for the disposition of any assets remaining at the time of the beneficiary’s death, as directed by the trust maker.
The rationale behind the statutes is logical. In the first party special needs trust, the funds that go into the trust are funds owned by, inherited by, or recovered by, the beneficiary. The first party special needs trust is thus funded with assets controlled by the disabled person. Those funds must be used to repay Medicaid or other public benefits programs because without the public benefit programs the beneficiary would have used his own assets to provide for his care.
The person funding the third party special needs trust is providing funds that belong to the third party to benefit the disabled person. The person contributing funds to the third party special needs trust has no legal obligation to provide those funds, and has no obligation to pay any of the disabled beneficiary’s medical, support or maintenance. That person should be allowed to direct where the funds go at the beneficiary’s death because that person has that right before transferring the funds to the third party special needs trust.
The establishment, funding and administration of a special needs trust, whether first party or third party, involve many rules and regulations that are foreign to attorneys who are not involved routinely with special needs planning.
If you, your family member or a loved one has a disability that creates eligibility for any public benefit programs, then special needs planning most likely is a critical need for that person.
When seeking out assistance with special needs planning, consult with an attorney who has the appropriate experience and training. Otherwise, you may find that the planning not only doesn’t help, but may cause unexpected and unnecessary harm.
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