PARENTS’ ESTATE PLANNING FOR PERSONAL INJURY VICTIMS

by Thomas D. Begley, Jr., CELA 

Personal injury victims frequently receive means-tested public benefits. They often establish Self-Settled Special Needs Trusts (SSSNTs) to hold the personal injury settlement, so that the settlement does not interfere with public benefits eligibility. However, it is important that parents not leave these children with disabilities monies as part of their estate plan. Parents should consider establishing a Third Party Special Needs Trust (TPSNT) and changing the beneficiary designations on their life insurance, retirement accounts and annuities accordingly. The parents cannot leave money to the SSSNT that may have already been established. The reason is that the SSSNT can only contain “assets of the individual.” The individual is the personal injury victim who is the beneficiary of the trust. The parents must establish a separate trust. The TPSNT to be established by the parent also has other benefits in that there is no Medicaid payback on death of the personal injury victim and distributions from the trust are much more flexible since they are not governed by the “sole benefit of” rule.

What is a Special Needs Trust?

A special needs trust is a discretionary, spendthrift trust created for a person who is disabled, as a way to supplement that person’s public benefits. Those public benefits may include SSI, Medicaid, Section 8 Housing, SNAP (Food Stamps), LIHEAP (utility assistance), TANF (Temporary Assistance to Needy Families), Group Homes, and other federally or state-sponsored assistance programs.

What are the Advantages of Special Needs Trusts?

A Special Needs Trust can:

• Help maintain an individual’s public benefits.
• Help enrich the beneficiary’s life.

What Can the Special Needs Trust Pay For?

The type of Special Needs Trust being discussed is called a “Third-Party Special Needs Trust,” because it is being funded by assets of someone other than the trust beneficiary. The trust is usually funded by parents, but is often funded in whole or in part by grandparents, other family members, and even friends. If the beneficiary is receiving SSI, the SSI is intended for food and shelter. Therefore, any distribution from the trust for food or shelter will reduce the beneficiary’s SSI payment. The maximum deduction is one-third of the payment plus $20. Sometimes this reduction is unavoidable, but where possible the beneficiary should use the SSI payment for food and shelter and let the trust pay for other needs. Typically Special Needs Trusts pay for the following:

• Household goods;
• Furniture;
• Automobile;
• Durable medical equipment, such as wheelchairs;
• Television, radio and cable services;
• Computers, iPads and other forms of technology;
• Telephone;
• Musical instruments;
• Recreation and entertainment;
• Medical insurance;
• Telephone bills;
• Newspaper subscriptions;
• Services of a Care Manager;
• Vacations;
• Movies;
• Tax payments;
• Medical treatment for which public funds are unavailable;
• Education;
• Cleaning supplies and paper products;
• Dental care, physical therapy, massages; support services and other medical costs not included by any benefit program;
• Home care services not covered by another program; and
• Personal services, including lawn mowing, house cleaning, grocery shopping and babysitting.

What Requirements must be met when Establishing a Special Needs Trust

There are three key requirements:

• The trustee must be given absolute control over the distribution of the funds.
• The person with special needs cannot have the authority to revoke, amend, or terminate the trust.
• The person with special needs cannot have the power to compel a distribution from the trust. 

How can the Amount of Funding Required for a Special Needs Trust be Determined?

The best way for parents to determine how much of their estate to leave to a special needs child is to obtain a life care plan from a professional life care planner, who will estimate the cost of the child’s care over a typical lifetime. Alternatively, a budget can be established by the personal injury victim or family. Assets in a Self-Settled Special Needs Trust should be considered in determining the needs of the personal injury victim.

If there are insufficient funds available, parents may consider buying a life insurance policy. With one type of policy, upon the death of the second parent, the insurance proceeds are paid to the special needs trust for the care of the person with special needs.

How is Trust Accounting Handled?

The Social Security Administration requires an annual accounting of the expenditure of funds in a special needs trust. This accounting is intended to ensure that trust funds have not been mishandled, and it serves to protect the person with special needs, as well as any other beneficiaries of the trust.

Because the accounting work is fairly technical and must adhere to the rules of the Principal and Income Act, it is best handled by an accountant, who can be hired by the trustee.

Trust Protector

The role of the trustee is to work with the family to achieve the desired results for the trust beneficiary. It always makes sense to select a professional trustee. However, it is always good to have a family member remain involved. Sometimes a trustee that is wonderful today may not be good in the future. The trustee may be bought by a larger institution with a different view towards Special Needs Trusts, or key personnel may retire and be replaced by other personnel without the same commitment. Therefore, it is always good to have a family member serve as trust protector. The trust protector is given the right to remove the trustee and replace them with another professional trustee.

What is a Letter of Intent?

As part of the process of planning for the future of a special needs child, it is very important for parents to write a letter of intent laying out their wishes for the child’s care. A letter of intent provides parents with an opportunity to explain, in detail, their child’s unique life and background. The letter helps ensure that those responsible for the child’s care in the future will see him or her as a “real,” multi-faceted person, rather than a number, statistic, or faceless subject in a legal document. The letter also serves as a vital document for the trustee, providing him or her with a greater understanding of the child, and ensuring that the family’s specific wishes, goals, and expectations can be carried out.

A typical letter of intent details the child’s:

• Unique personality traits.
• Medical history and special needs.
• Special education, past and present.
• Treatment, therapy, and daily care needs.
• Favorite foods and clothing.
• Friends, co-workers, family members, and anyone else who is close to the child.
• Favorite recreational activities and sports.
• Past vacations and those he or she hopes to take in the future.

What Happens at Age 18?

Prior to age 18, the income of the parents are deemed to the child. This means that prior to age 18 the income and assets of the parents are considered to be the income and assets of the child. For most children under 18, this means they will not be eligible for SSI until they are 18. Upon attaining age 18, the parents should apply for SSI.

Also at age 18, the parents should consider applying for guardianship for the child with disabilities, if the child lacks sufficient mental capacity to make life decisions or to manage money. There are several types of guardianship including limited guardianship.