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Special needs planning has unique issues during and after COVID-19 crisis

by Kelly Gicale | Contributor
May 25, 2020

If you have a loved one with special needs, then you already know additional care, planning, and support are necessary for ensuring his or her well-being. This is true in the best of times, but it is especially critical during a crisis like the global pandemic we are currently facing.

Planning for your loved one with special needs is not just limited to planning schedules, caretaking and daily routines. It requires thoughtful short- and long-term planning, especially for the services and finances they may need now or in the future. To truly provide for your loved one, a comprehensive plan must consider eligibility for government assistance, protection against unique risks to persons with special needs and potential legal or other changes down the road.

a caregiver helping a someone with a disability in a wheelchair get up a ramp

Even if you have a plan in place, the COVID-19 pandemic presents an unexpected curveball that could have serious implications for your loved one with special needs. Social distancing and widespread illness may impact the availability of caregivers or caregiving facilities, government benefits could be reduced or delayed and critical services could be modified or eliminated entirely as a result of budget shortfalls. In addition, this crisis creates a greater risk of your loved one losing those he or she relies on most.

However, there are legal options available that are specifically geared toward protecting and caring for those with special needs. One of the best options to consider, especially during a crisis, is a third-party supplemental benefits trust (otherwise known as a third-party supplemental needs trust or third-party special needs trust).

What is a third-party supplemental benefits trust (or “TPSBT”)?

A TPSBT is a trust established by someone other than the person with special needs for his or her benefit. The TPSBT holds assets for the benefit of a person with special needs without those assets being used in determining eligibility for government benefits such as Supplemental Security Income (SSI) and Medicaid. This is because the assets are considered owned by the trust, not the person with special needs.

What are the benefits of a third-party supplemental benefits trust?

In addition to the assets not being counted for determining government benefit eligibility, the following are potential advantages of the TPSBT:

  • There is no limit to the size of the trust and no age limit on the person with special needs.
  • Generally, these trusts do not require court monitoring, especially while the person who funded the trust (the “donor”) is living.
  • Funds in the trust can be used to cover most supplemental expenses (more information on this below).
  • The trust is protected against creditors of the person with special needs, because the assets are not owned by him or her.
  • Taxes on income generated by the trust are generally assigned to donor while he or she is living, not the person with special needs.
  • The donor can decide who will receive the remaining funds after the beneficiary passes away.
  • Unlike other special needs trusts, the government is not entitled to reimbursement for Medicaid benefits upon the beneficiary's death.

What can the funds in a third-party supplemental benefits trust be used to cover?

As mentioned above, TPSBT funds can be used for almost all supplemental expenses not covered by government benefits.*

This can include:

  • Additional medical and dental expenses
  • Insurance
  • Special medical equipment
  • Therapy and rehabilitation
  • Transportation, including the cost of a travel companion
  • Legal and guardianship costs
  • Education or training
  • Electronic equipment
  • Pets and pet supplies
  • Appliances
  • Vacation and other recreational activities
  • Other goods, services, and hobbies

Generally, cash and expenses for food and shelter should not be paid with funds from a TPSBT, but it is always best to consult a special needs attorney before deciding the best plan for you and your loved one.

*Note: funds generally must be paid directly to the person or company providing the good or service to avoid having the money counted for SSI and Medicaid eligibility.

Why is a third-party supplemental benefits trust a good option during a crisis?

an attorney going over benefits with a client

Although parents or grandparents often use a TPSBT in estate planning to provide for their loved one after their death, it can be established as a stand-alone trust to be funded and available during their lifetime. This means that you can set up a TPSBT to ensure your loved one has the support he or she needs during the quarantine and in the aftermath of COVID-19. Whether that is a streaming service for more entertainment options, additional or different caregiving arrangements, special therapy, or even an iPad to FaceTime with family and friends, a TPSBT allows you to pay for these and other items without affecting his or her benefits eligibility.

Additionally, because TPSBTs do not generally involve the kind of court monitoring that other kinds of special needs trusts may require, you can avoid the inevitable hassle of navigating a court system that will be even more delayed and overburdened as a result of the pandemic.

What are the downsides of using a third-party supplemental benefits trust?

The biggest downside to the TPSBT is the absolute need to keep any assets or funds owned by the beneficiary out of the trust. If the trustee inadvertently adds anything owned by the person with special needs into the trust—inheritance, settlement, etc.—then the trust will be considered tainted. In those circumstances, the inheritance or settlement will need to be placed in a first-party special needs trust or other vehicle to avoid a potential impact on benefits eligibility.

How do I set up a third-party supplemental benefits trust?

Establishing a TPSBT requires the expertise of an attorney who is knowledgeable in special needs law. With all special needs trusts, including third-party supplemental benefits trusts, experience can make the difference between providing for your loved one and unintentionally depriving them of their benefits. It is essential that your attorney includes all of the provisions necessary for the trust to be considered a TPSBT and therefore eligible for the benefits above. It is equally important that your attorney does not unwittingly include language that may violate the requirements of a TPSBT and deprive you and your loved one of those advantages. For both considerations, your attorney's knowledge and expertise will make or break this protective strategy, which could be the best option for ensuring your loved one with special needs is cared for during this uncertain time.

How do I know if a third-party supplemental benefits trust is right for me?

The best way to determine if a TPSBT is the best option for you and your loved one is to consult an experienced special needs attorney. After discussing your specific situation, concerns, and goals, your attorney can advise you as to whether or not a TPSBT or another option is the best solution for you and your loved one.

How do I create an estate plan?

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life's contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

This article is published by Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at legacyassuranceplan.com.

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