Go Back

Special Needs and Preventative Planning


I recently attended a Special Needs Planning conference in which some of the industry’s best and brightest gathered to discuss the latest in this important area of law. Special Needs Planning deals with, among other things, planning for individuals who, whether by birth or some other incident (injury or illness), are mentally, physically, or emotionally disabled. Because of the occupational limitations these kinds of disabilities typically place on such individuals, the government has provided various types of means‐tested benefits that are available to aid in sustaining the disabled.

Programs like Supplemental Security Income and Medicaid are examples of common means‐tested government benefits; however, in order to qualify for these programs one must meet the government proscribed limitations on the amount of income and assets a potential recipient can posses without forfeiting one’s right to such assistance. Consequently, as an estate planner, it is not uncommon to be faced with the obstacle of drafting a trust in such a way that would allow potential beneficiaries to receive an inheritance from his/her parents without risking disqualification from continued receipt of means‐tested governmental benefits. Fortunately, Federal laws allow for the formation of certain types of trusts that can be established for the disabled individual’s benefit without disqualifying said individual from a means‐tested governmental benefits program.

The three types of trusts typically used in Special Needs Planning are: Third Party Special Needs Trusts, d(4)(A) Special Needs Trusts, and d(4)(C) Special Needs Trusts. As should be expected, each of these trust has different features to be considered in determining the appropriate fit for a given client. For example, the Third Party Trust is generally an ideal vehicle for Special Needs Planning as it can be set up by anyone other than the disabled individual and does not require that any assets be paid back to the government at the disabled individual’s death as a reimbursement for benefits received. On the other hand, d(4)(A) and d(4)(C) trusts have what is referred to as a “Medicaid Payback Provision” which requires the use of remaining trust assets for governmental reimbursement at the disabled individual’s death. As noted above, all of these trusts allow for receipt of an inheritance and continued governmental assistance.

While this post is meant to be a simple overview of Special Needs Planning trusts, it is also intended to alert individuals to the importance of incorporating the appropriate language in their family trusts so that it will be possible for successor trustees to be able to form such trusts in the event any of them is ever necessary. Furthermore, appropriate planning beyond the realm of estate planning should be taken to provide for unexpected injuries or illnesses that may lead to forced retirement from one’s job or increased medical costs/treatments due to a disability. In other words, regardless of what our new Health Care laws end up providing for those rendered disabled and unable to work, disability insurance is just one example of an attractive option one could employ as a supplement to any assistance the government is willing to provide. In short, proactively planning for the unexpected is likely to provide maximum flexibility and increased autonomy in dealing with career‐ending disabilities.

-Attorney Jeremy Cooper