Special Planning for Special Needs, Part II

Last week, I introduced you to Special Needs Planning and Special Needs Trusts. This week, I'd like to talk about a very important distinction between the two main types of Special Needs Trusts and why it is critical that you know the difference.

Kinds of Special Needs Trusts

There are basically two types of Special Needs Trusts: 1) "First Party" Special Needs Trusts, and 2) "Third Party" Special Needs Trusts.

A First Party Special Needs Trust (also called a "Self-settled" or "Self-created" Special Needs Trust) is a trust established with assets that belong to the person with disabilities. Typically, these assets come in the form of personal injury settlements or judgments, inheritances, lump sum Social Security payments, or other funds belonging directly to the person with disabilities.

A First Party Special Needs Trust must be established by the beneficiary's parent, grandparent, legal guardian, or by a court. These trusts only work if they specifically provide that upon the trust beneficiary's death, the remaining trust assets must first be used to repay the State of Utah, up to the amount of the Medicaid benefits provided to the beneficiary. For this reason, such trusts are sometimes referred to as "payback" trusts.

Third Party Special Needs Trusts are established with the assets of someone other than the disabled person (a third party), such a parent, grandparent, sibling, or a concerned friend. For example, relatives or friends of the disabled individual can make a gift by adding to the trust instead of making an outright gift directly to the individual. Or parents can purchase life insurance to provide for their special needs children and make the trust the beneficiary of the life insurance proceeds. Unlike a First Party Special Needs Trust, there is no requirement that the State be repaid upon the death of the beneficiary.

Consider Adult Guardianship/Conservatorship and Alternatives at Age 18

When your child reaches age 18, you will not longer be entitled to make decisions about your child's personal care or finances unless you petition a judge to become your child's legal guardian and/or conservator. Although your child might not be capable of making decisions about their well-being at age 18, the law presumes that your child is capable.

Because a full Guardianship takes away your child's right to make important decisions, the decision to petition for Guardianship of your child at age 18 should not be automatic. If you child is capable of making some decisions, but not others, a limited Guardianship may be more appropriate.

Likewise, there are certain alternatives to Guardianship that may be sufficient. If your child has the ability to make their own decisions, they can empower you to make health care and financial decisions by signing the appropriate legal documents. If your child receives Social Security payments, you can be designated as a Representative Payee. A joint bank account may also serve as a means of providing structure and discipline to a monthly budget.

Other Considerations

Special Needs Planning goes well beyond Special Needs Trusts and Guardianships, however. As the parent of a special needs child, one of the most important things you can do in preparing for your child's future care is put together a "Life Care Guide" (also known as a "Letter of Intent.") In this guide, you should include information about your child's medications, doctors, therapists, IEP, social activities, housing, and capacity to attend to their needs on their own. This guide can be written or recorded, but it should be updated throughout your child's life, to be eventually given to your child's future caregiver.

When considering a Special Needs Trust or Guardianship for your child, you really need to work with a lawyer who dedicates a significant portion of his or her practice to this specialized area of estate planning. Remember, the people who benefit if you take the time and thought to create a plan are the people you love most--your children.


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