Estate Planning for a Disabled Heir

When I meet clients and gather all the information regarding their health, assets, income, and family dynamics; one question I always ask is about the current and anticipated health of their future heirs of their estate.  My role is to gather and determine what is the best plan for them.  Many times, clients have young children that need a trust because of the ages.  Others want a trust to control distribution to a financially irresponsible heir or someone who has issues such as gambling, alcohol, drug, or other life issues such as marital discord.

However, this article will touch on when clients have heirs disabled from birth such as cerebral palsy, cystic fibrosis, and Downs Syndrome; or other health issues, injuries, or conditions that developed later in their heirs’ lives.  Many clients have heirs, including adult heirs that live independently but are on “needs-based” government assistance such as SSI, Medicaid, housing, SNAP-food stamps that have strict financial limitations; usually with limits of $2,000 of countable assets. A direct inheritance would jeopardize these benefits.

One way to avoid your heirs losing these benefits for these “needs-based programs” is to create a trust known as a special needs, or supplemental needs trust and leave their heirs’ share in this trust versus leaving it directly to your loved one.  The trust basically provides that the funds can be used for the disabled beneficiary but not considered “available” that would jeopardize benefits from needs-based programs, such as SSI or Medicaid.  The funds in these special needs trusts can only supplement, and not supplant or replace government benefits.

The trust can be set up in your Last Will and Testament, called a “testamentary trust” or can be a stand-alone trust with contingent beneficiaries in the event the disabled heir does not survive you, or at a later time when the disabled beneficiary passes away.  Similar trusts can be set up by a healthy spouse if they would pass away first and have a spouse receiving Medicaid benefits, at home, assisted living or a nursing home.  This is a legal way to protect the marital assets.  These supplemental needs trusts for a spouse must be testamentary trusts (trusts contained in your Last Will and Testament).

If you do not have a good trustee in mind or a modest amount, Indiana has pooled trusts run by non-profits that can also be funded during your life or upon death for a disabled beneficiary and protect the heirs’ governmental benefits.  Locally, SWIRCA has a pooled trust as well as Arc of Indiana based out of Indianapolis.  ABLE accounts for a disabled beneficiary whose disability started before their 26th birthday is an option as well for a modest amount-no more than $15k from all sources can go into this account per year.