Do You Need A Special Needs Trust For Your Disabled Child? (Episode # 302)

0:31 Well, good afternoon, Michiganers. It is Tuesday, May twenty first, twenty twenty four, and of course this is Tuesday with Tom, Michigan's only weekly internet show where we do answer your questions about estate planning and a state settlement in Michigan. As always, I'm your host, Tom Doyle, a state planning attorney, lifelong Michigan resident, an ambassador for all things good in this great state of Michigan. Welcome, Welcome, welcome to today's program. Well, it's been a little while since I was on the air with you. I've taken a little bit of time off in the springtime, just trying to enjoy the spring weather that we've been having. Also, if you are a subscriber to our office newsletter, you would know that we have in the meantime now opened a new office in Grand Rapids is Well. So if you have any questions about that office, simply head on over to the Doyle UPC website and you will find information on the new office. Well, the last episode question should you use a professional trustee? So you're putting a trust together, you're wondering should you have a professional involved as a trustee. I encourage you to listen to last week's episode so that you will be better informed in

2:04 making that decision. Today, going to change gears a little bit looks like it's a topic that maybe I haven't covered in a podcast, and that is do you need a special needs trust for your disabled child? But please remember what I'm about to discuss during the program is, as always for educational purposes only. It is not intended to be legal advice. You need to work with your attorney to determine what is appropriate for you and your estate plan.

2:55 Do you need a special needs trust for you or disabled child? Very common when Amanda and I are meeting with clients and they will have a special needs child that's going to be somebody who's already receiving what we would call needs based government benefits such as Medicaid or supplemental Security income. The parents obviously are concerned about what options they have to still leave in a state, if you will, for that special needs child, and yet not interfere with their ability to receive those needs based government benefits. So that's what we're going to talk about a little bit today. What sort of trusts planning might be available to you for you consider If that's the circumstance that you find yourself in, and essentially there are going to be two major types of special needs trust. We're going to have what's called a first party special needs trust or sometimes called a self settled trust. That trust is a trust that's being funded with the child's own assets. Perhaps your child has received an inheritance from somebody else, or maybe they receiving a personal injury settlement or some other sort of windfall. They're disabled,

4:30 they are receiving medicaid and or supplemental security income because they have the medical and the financial qualifications to do that. However, if they receive this personal injury settlement or the inheritance, they'll have too much and that would impact their ability to receive those benefits. So first party special needs trust, where your child is going to put their own money into it, basically allows an individual with a disability to protect their assets while at the same time maintaining eligibility for those needs based or means tested government benefits. If the child is an adult and is otherwise competent to do so, they can create or have created for them that special needs trust without any court involvement. However, if the child is a minor or a legally incapacitated adult, then that first party special needs trust is going to require probate court approval. So kind of two different types.

5:59 One is where the child is competent going to have the special needs trust created on their behalf. Second one is where you're now going to require court approval to do that. In either case, assuming that the court approves it or that otherwise the special needs trust is created and has proved. In that case, it does allow assets to be placed into that trust use to support, if you will, or assist in the support of the child, without affecting their eligibility for the means state tested government benefits. Now something to keep in mind, though, upon the child's death, any remaining funds in that first party special needs trust have to first be used to reimburse Medicaid for all the expenses incurred by Medicaid during the beneficiary or the child's lifetime, So you don't have an option under this first party special needs trust to determine where those proceeds are going to go upon your child's death. The other type of special needs trust, though, is what's called a third party special needs trust.

7:26 That would be a trust for example, that could be created by you as the parent, where you're creating the trust and you are using your assets for the benefit of your child, it's not the child's assets. So the third party special needs trust is probably the most common that we will be dealing with when we are assisting in parents putting together their estate plan. Unfortunately, when many parents come to us, they have been led to believe that the only option that they have for assisting a special needs child, or the only options that they would have, are one to simply disinherit the child, don't leave them anything in your state, and if you don't leave them anything, you're not giving them anything that would put them over the threshold limits that would affect their ability. The second option that many parents are considering when they come to see us is they think, well, if I do want to leave something, what I really need to do is I need to leave it to one of my other kids and have some if you will inform an agreement with the other children that says, look, we're not going to leave anything in our state to let's say Tommy, our disabled child, but will leave everything else to the other kids with the understanding that they will take care of Tommy out of their proceeds. Now, what's the risk in that will obviously risk in

9:01 that is, maybe they won't do what you wanted them to do. Maybe you would leave the entire estate and they would decide that taking care of Tommy is too much of a burden for them or too expensive for them, and there would not be a legal requirement for them to use those proceeds. That is when you should really start looking at considering this third party special needs trust. Now, the special needs trust that we're talking about can actually be part of your living trust. When we get to the distribution provisions in your living trust and we say, for example, divide the estate up equally between our children, we can then put a provision in your own trust that would say something along these lines. Any distribution that would otherwise be made for our son Tommy will be retained in our trust pursuant to the terms low which are all the special needs provisions inside your trust. So you don't have to prepare or have prepared for you a separate, standalone special needs trust if it's simply your interest in using the proceeds from your state to have the ability to have them managed for your special needs child. Now unlike unlike that first party special needs trust, because it's your asset, not the child's asset, there is no

10:33 requirement that Medicaid has to be paid back at the time of your child's death. That means whatever assets are still remaining in that special needs trust for your child's death can pass to other beneficiaries or charities or wherever it is you would want those proceeds to go. So using the special needs true trust a basically inside your trust allows you to accomplish your goal of providing additional assistance to your child, while at the same time them not losing in their government benefits, and you still having the ability to determine where any excess proceeds go at the time of their death. Now there's another type though, of a third party special needs trust. That's going to be a standalone trust. It's not going to be part of your trust. It's going to be a totally separate, standalone trust. And when do people do that again, it would be not using the child's money, It would be using whoever is setting up this standalone trust. It could be you, it could be a grandparent, it could be somebody else. Essentially where that standalone third party trust is going to come into play is let's say you have other family members that also want to include

12:07 your special needs child as part of their estate distribution. So let's say grandparents, as an example, look and say, hey, we want to as part of our state plan, also provide some benefits in this case for Tommy, so that there will be benefits available. Well, most of the time, the grandparents don't want to put that money in your trust because if they put that money in your trust, you can spend it on something else, or maybe answer uncles or whoever. It happens to be where somebody wants to be making funds available, but they don't want to put them inside your trust that already create contains a special needs trust. That's the time that you're normally going to look at somebody creating this stand alone third party trust. Now, again, just like inside your trust, there's going to be Obviously, all of these trusts that we're talking about have limitations on what the trust can be used for, because it's by limiting what the trust can be used for, that's maintaining the benefit availability for the government qualifying for the government benefits. But just like that third party trust that's in your trust. This standalone trust, it doesn't have to be irrevocable. It can be a revocable trust. There's certain people that can create that standalone third party trust and upon the death of

13:41 the beneficiary of the third party trust, the standalone again, proceeds don't have to be used to pay Medicaid back. So again kind of quick review child's own assets, those go into a first party special needs trust, your assets that you have a parent, or maybe assets come from other individuals. Then you can look at having the third party special needs trust. Now there's another type of trust that's called a pooled special needs trust. So obviously, in having a first party special needs trust prepared, that's going to require a law firm to be involved in preparing that document for you. In having a special needs trust, the third party, whether it's a standalone or inside your trust, is going to require a law firm to be involved. There is the idea of a pooled trust, and that is where there's going to be a nonprofit organization that already exists and there are a number of them out there, and what they do is they pool the assets of multiple beneficiaries. So you're not going and having a lawyer prepared a trust to create a trust. There's already one in existence that's being managed by this nonprofit organization. They're pooling the assets of multiple beneficiaries for investment purposes, while basically they're keeping separate sub accounts

15:16 for each of the beneficiaries as part of that pooled fund. That's really most applicable if you have a child or beneficiary who have small amounts of assets that don't really warrant the amount of money that perhaps is going to be spent to have a either the standalone third party trust or incorporating as part of your world state plan, and they're looking obviously for professional excuse me, management and oversight where that's already being provided to them. There aren't trustee fees that are being charged, etc. Now, the advantage of the pooled special needs trust is that upon death of the beneficiary, again, proceeds in Michigan don't have to go to pay Medicaid back. However, they do go to the nonprofit organization.

16:26 Obviously it's a means for continuing the work that that nonprofit organization is going to do. If you're interested in pooled Special Leeds trust, you can obviously do a Google search and you'll find a number of them in the state of Michigan. They might be related to different conditions that a child might have, or they might be more general where they will manage the proceeds for any otherwise qualified special needs child. Now there is another option out there if you don't want to go and have an entire trust prepared and if the numbers work out for you, there is what's called an able account. And if you already have a special needs child, you might be familiar with that. But essentially what the abled account is it's a tax advantage save an account kind. It's basically being treated like a five to twenty nine plan in the state of Michigan.

17:30 If you're familiar with that, we're saving money for college expenses, similar kind of concept. It's a savings account that's designed to help individuals with disability to plan and save for disability related expenses. Now, not technically a trust. There's not a trustee, there's not going to be some nonprofit involved, it's not requiring court approval, et cetera. It's simply an account that's being set up. Now, the account, there are some restrictions on who can actually establish the accounts, and that's all set forth in the provisions for the State of Michigan. But the idea is putting funds that might be the beneficiaries funds that are going into maybe there are maybe they're continuing to work and some of the proceeds from their earnings can go in there. There are going to be certain limitations, and I'm not going to go into the entire able accounts today. I'm going to save that for a future podcast, but essentially there are going to be annual contribution limits, which is essentially whatever is the current annual gifting amount that's going to be the annual limit on how much can be put into an ABLED account. That current limit is eighteen thousand dollars, and if you accumulate over one hundred thousand dollars in the account, that then could end up causing reduction in government benefits. So you're going to have annual contribution

19:04 limits, and then you've got this overall limit that you have to be mindful. But the able accounts, if you're interested and you don't already know about it, simply go to Google and look up am I ABLE all one word m I A B L E and that's going to take you to the link of the Michigan Able Account. All kinds of information that's going to be available there for you to determine what you're going to do with the able account.

19:56 Of course, as always, Amanda and I would be honored have the opportunity to help you protect your loved ones, help you determine what you're looking at by way of special needs provisions. Again, most of the time we can simply incorporate that into your own special needs trust, assuming it's going to be your assets, they're going to be used. We would be happy also to help you amend the current plan that you already have or put together a new estate plan, or of course in settling a loved one's estate. Now you have a number of options. One we have, as we have for a couple of years now, the ability to meet with you at the East Lansing office location. We now have the new Grand Rapids office location on Peninsular Drive where we would be able to meet with you. Of course, we still offer virtual consultations and zoom by zoom or telephone. That's how we can probably handle or assist you wherever you are in the state. Also, remember all That information too, is available at Doyle lopc dot com. So if you're interested in any of that, I encourage you go to Doyle apc dot com, where you're going to find information on how to go about setting up these different consultations. Also, remember if you're simply looking for an individual document, maybe all that you need is a new healthcare power of attorney or perhaps a

21:26 new durable power of attorney. Simply head on over to doylopc dot com and click on the Legal store, and there you're going to find information on how you can order simply individual documents through our website as well. Well. I think that's going to be it for today show. As always, though, if you have a comment about the program, a topic that you'd like to have me discuss, or questions that you'd like to have answered, please send me an email Tom at Tuesday with Tom dot com. Also a reminder, if you go to the new Tuesday with Tom website, you're going to see a microphone at the top along the top menu items. You can click on that and leave a voice message again commenting on the program or asking about a topic that you'd like to have me discussed or questions you'd like to have answered.

22:33 Obviously, that's not designed to provide legal advice, but perhaps a general topic that you might be interested in having me discussed. Please also follow us on Facebook. Invite your friends and family to follow us again, that is at Tuesday with Tom on Facebook. The office of course on Facebook is Doyle Law PC. Remember two. Tuesday with Tom is available on Apple Podcasts, Spotify, Google, Pad Cast, iHeartRadio Speaker. Probably wherever it is that you listen to podcast, you will find Tuesday with Tom. You can also ask your smart speaker to play Tuesday with Tom. Thanks again for spending some of your time with us today and as always, I hope that you have an awesome day and an awesome week in Michigan. Stay safe. Tuesday with Tom has been brought to you by the estate planning attorneys at Doyle Law PC.

23:37 To learn how we can help you with your estate plan or with settling a loved one's estate, please call us today at five one seven three two three seven three sixty six. That's five one seven three two three seven three sixty six.