IL Estate Planning Blog

Tuesday, November 15, 2016

Special Needs Planning

Excerpts Taken from WealthCounsel Quarterly Volume 10 Issue 2, A Primer on Planning for Special Needs Beneficiaries by Jeremiah H. Barlow, JD



Many clients with special needs beneficiaries are in a quandary when it comes to how they should design their estate plans and ultimately provide for their beneficiaries.  While individuals with special needs are often eligible for financial assistance and healthcare benefits from the government, without proper planning, inherited assets can disqualify a beneficiary from receiving governmental assistance. 



- Don’t disinherit special needs beneficiary.

- Don’t give assets outright to special needs beneficiaries.

- Don’t give assets to siblings to “hold” and hope they do the “right” thing.



So what is Supplemental Security Income (“SSI”) and Medicaid and why does it matter?  SSI is a federal assistance program that provides income to those who are disabled (in addition to those who are 65+ or blind).  A person is disabled if they are “unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months.”

To be eligible for SSI, there are resource and income limits.  The resource limit is currently $2,000, which means that an SSI beneficiary cannot have over $2,000 in assets.  This includes cash, real or personal property that can be used for his or her support and maintenance.  There are excluded items from the resource limit, such as a personal residence, furniture, clothing, and personal care items, and a vehicle.  There are also income limitations.  In short, if income can be used for food or shelter, then SSI considers this income.

SSI is very important because if an individual qualifies for SSI, he or she will often also qualify for Medicaid.  Noteworthy, Medicaid income eligibility limits vary by state.  In California, if an individual qualifies for SSI, they will also qualify for the state run program, Medi-Cal.  Medicaid, and other similarly state run programs provide medical assistance, such as payment of doctors’ services, lab tests, hospitalization, X-rays, home health care, nursing home care, and other related medical services.  If you are an Illinois resident and a U.S. citizen or qualifying non-citizen, you may be eligible for Medicaid if you meet Illinois' income and asset requirements. If you are blind or disabled (based on Social Security's definition of disabled), you can qualify for Medicaid if your income is at or below the poverty level. This amount is $11,490 annually for an individual.

For someone with special needs who qualifies for both SSI and Medicaid, continuing to qualify for these benefits is critical.  Many clients, including the benefactors in my family, are most concerned about maintaining the beneficiary’s medical benefits.  While the financial benefits that come with SSI are important, if the Medicaid benefits are terminated, any assets of the beneficiary will be quickly diminished due to the high cost of medical expenses.

Inheritance in excess of these resources and income limits will result in either a reduction in a beneficiary’s SSI or entire loss of SSI.  Thus, proper estate planning is necessary to ensure inheritance does not compromise these benefits. 



A special needs trust (“SNT”) is a foundational estate planning vehicle used to preserve a beneficiary’s governmental assistance when they inherit assets.  At its core, a SNT is a discretionary trust that is designed specifically to preserve governmental benefits for someone receiving SSI and Medicaid.  By design, the trust distributes assets only to supplement government benefits, not replace them.


A first-party SNT is funded using the beneficiary’s own assets.  One key result of a first-party SNT is that upon the death of the beneficiary, the government is able to take the remaining assets in the trust, rather that those assets flowing to residual beneficiaries – a concept generally referred to as estate recovery.  A third-party SNT is created and funded by someone other that the special needs beneficiary.  There is no governmental reimbursement or estate recovery for a third-party SNT.   A “SNT” can occur upon death as outlined in a will or revocable living trust.  A SNT can also be created as a stand-alone trust that others can add to during the beneficiary’s life.



One of the most important and hardest decisions in designing a SNT is choosing who will serve as trustee.  Family and friends can certainly assume this role.  As with any trustee, they should be responsible and trustworthy.  This is critically important because the beneficiary of the SNT will not likely be able to police the acts of the trustee, and distributions will be at the sole discretion of the trustee.  Thus, a client must have confidence in the trustee’s ability to make distributions in the best interests of the beneficiary.


The use of a corporate trustee of professional fiduciary is often also a great option where there are no trusted individuals, or when a beneficiary could outlive an individual trustee.  Obviously, a corporate trustee has no age limitation, whereas an individual does. 


If a corporate trustee is used, consider appointing additional parties who can assist the trustee in making daily decisions for the beneficiary.  This is critical because a corporate trustee is often not in a position to know and understand the unique daily needs of the beneficiary.  This appointed individual can come in many forms, such as a Care Manager of Trust Advisor.  (A Care Manager is a professional in the special needs industry who can guide and advocate for the beneficiary.) 



A pillar of the special needs trust are the discretionary distribution standards which specify that trust assets are not used for the needs of a beneficiary that is already covered by governmental benefits.  Careful drafting of this section for a SNT is critical.


Since a trustee will hold sole discretion over distributions, it is important they understand how certain distributions will affect a beneficiary’s governmental benefits.  For example, a trustee cannot distribute assets to a beneficiary that may be considered income.  This includes distribution of cash to a beneficiary, or reimbursement for expense paid by a beneficiary.  Additionally, if a trustee were to distribute assets to purchase for a beneficiary, this would be considered shelter and may disqualify SSI.


In simple terms, the trustee can distribute SNT assets for items that are not related to food or shelter, such as travel costs (i.e. plane tickets), dental care, and entertainment.



Complete and update a journal about your special needs beneficiary. This journal should include the following:

  1. describe a day in the life of the beneficiary;
  2. full medical history;
  3. list of all prescribed medications, vitamins, herbal supplements;
  4. list of all medical professionals;
  5. what makes the beneficiary happy, sad, or cooperative;
  6. who does the beneficiary have a special relationship with;
  7. what are the beneficiary's dietary needs.
  8. does the beneficiary have a specific routine.

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With two offices in Oak Lawn and Oak Brook, Stephen M. Sutera assists clients throughout Cook County, DuPage County and Will County IL including Chicago, Hometown, Barrington, Burbank, Burr Ridge, Chicago Ridge, Darien, Downers Grove, Evergreen Park, Geneva, Worth, Bridgeview, Palos Park, Palos Hills, Palos Heights, Hickory Hills, Midlothian, Willow Springs, Oak Forest, Orland Park, La Grange, Brookfield, Berwyn, Tinley Park, Hinsdale, Villa Park, Clarendon Hills, Westchester, Westmont, Lombard, Elmhurst, Western Springs, Berkeley, Downers Grove, Fox Valley, Glen Ellyn, Willowbrook, Aurora, Addison, Lisle, Forest Park, Bensenville, Wheaton, River Forest, Itasca, Shorewood, Frankfort, Mokena, Naperville, Crest Hill, Homer Glen, New Lenox, Bollingbrook, Schaumburg, Channahon and Woodridge.

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