How Should the Family of a Disabled Individual Design an Estate Plan? (Part One)
by
Lisa Nachmias Davis
Attorney at Law
129 Church Street, Suite 805
New Haven, CT 06510
203-776-4400
Fax 203-774-1060 or 776-4411
davis@sharinglaw.net

    Planning for families with disabled family members presents special concerns. In addition to arranging for continued care and attention to the disabled individual's needs, such as by designating a "standby guardian" or through other arrangements, the family must make arrangements for the individual's financial well-being.

    The parents of a disabled child must ensure that the child will receive adequate financial protection, probably for the child's entire lifetime, while at the same time providing equitably for other family members. The dependents of an individual disabled during adulthood may also require financial help.

    In many cases, to accomplish these goals it will be necessary to access government entitlement benefits -- whether Social Security disability or Supplemental Security Income, state supplemental assistance programs, Medicare and Medicaid (Title XIX), or property tax exemptions -- established to help those challenged by the unexpected catastrophes that afflict human beings. How does one remain eligible for these valuable resources without first becoming impoverished?

    A "special needs trust" may form the most meaningful part of the family's estate plan. Because the trust assets are (1) provided by someone other than the beneficiary, and (2) held in a trust for "supplemental needs" only, if the trust is properly administered it should not affect the disabled individual's eligibility for entitlement benefits or be accessible to the individual's creditors, including the government.

    A "special needs trust" will supplement, not reduce or replace, entitlement benefits which may be available to the disabled individual. If no benefits are available, the trust assets stand ready to help. If the available benefits do not provide adequately for the beneficiary's needs, the trust assets will fill in that gap. Even if the available benefits adequately cover material needs, the trust assets may be used to enrich the beneficiary's quality of life without jeopardizing the much-needed benefits. Finally, to the extent that the assets are not used during the beneficiary's lifetime, they may pass to other family members.

    What happens, however, if the disabled individual has assets, but these are inadequate to meet his or her needs? What if a will or a trust names the individual without providing for a trust in the event of disability? And what if the individual is about to receive a settlement or award in a personal injury lawsuit?

    In 1993, Congress gave disabled individuals and their families a breath of financial hope. By placing such an individual's property in a special kind of special needs trust, a so-called "OBRA '93 Trust" or "payback" trust, the individual will remain eligible for certain important benefits, including Medicaid. The catch is that upon the beneficiary's death, the Medicaid benefits must be repaid, with only the balance passing to other family members. During the individual's lifetime, however, the difference between an OBRA '93 Trust and no trust can be the difference between having training and educational opportunities, a computer, music, regular outings and a vacation, and living a life of poverty or dependency. Since 1998, such trusts can be established in Connecticut even when the individual is legally incapable. However, the requirements for such trusts, and their effect on the particular benefits received by the individual, can be complicated. In Part 2, I will discuss OBRA '93 Trusts in detail. 

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