Planning for a family member with a disability

A. Margot Gordon, JD’88, is of counsel at Monahan Law Group in Chicago, concentrating in estate planning. Gordon has been named an Illinois Super Lawyer by the Thomson Reuters rating service.

Caring for a family member with special needs has its own set of responsibilities and challenges, but proper financial and estate planning can alleviate the added pressures of protecting his or her future.

Special needs planning is designed to protect assets and provide access to government services or benefits for a family member with a disability. Even wealthy families require this planning to ensure access to certain government programs.

Because people with disabilities are living longer, public benefits are often necessary to cover their lifetime support. They also may be at greater risk of financial exploitation. To fully protect a family member, your estate plan must include a special needs trust (SNT).

What is an SNT?

It’s an irrevocable trust that benefits a person while allowing him or her to become eligible for governmental benefits and services. If you establish an SNT, and the beneficiary does not have the legal right to demand trust assets, then the trust is not considered a “countable resource” for purposes of government benefits and services. Therefore, your family member can receive government services and benefits even though he or she is also a trust beneficiary. If properly drafted, the SNT can continue to provide for the person for life, even if he or she is no longer considered disabled.

What if your family member already has assets?

If the person already has assets and is under age 65, those assets can be sheltered in an SNT called an OBRA trust, named for the Omnibus Budget Reconciliation Act of 1993. The main difference between a typical SNT and an OBRA trust is that the latter must include a payback provision to Medicaid for any assistance provided before the person’s death. While OBRA trusts are a good solution for someone with assets, they do have limitations, such as the age restriction.

Given the complexity, some people go as far as to disinherit their family members with disabilities. But this severe action is unnecessary. With proper planning, your family member can receive the benefit of your inheritance or lifetime gifts and still receive needed government services or benefits.

How can I plan for a person with disabilities along with my charitable giving?

You can designate an SNT as a beneficiary of a charitable remainder trust, which pays income to the SNT and leaves the remainder to charity. A charity can also be named as the remainder beneficiary of an SNT after the person’s death. In some cases, it may make more sense to leave gifts to charity and plan for family members separately.