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Parents of special needs children frequently worry about what will happen to their children if and when they are no longer able to provide ongoing support and care. Special needs children with certain types of intellectual and developmental disabilities, in particular, often need support throughout their adult lives, even though the type and amount of support needed may vary widely not just by the specific condition but by individual symptoms and experience. Parents who are aware of this possibility – or who are already seeing it unfold – often have deep concerns about their children’s futures.
The legal mechanisms available to help parents provide for adult children who may not be able to fully care for themselves are somewhat different from those that parents of minor children sometimes put in place to ensure that their young ones will be placed securely in the care of a trusted guardian if anything happens to the parents along the children’s path to adulthood. One estate planning tool widely used to provide for the future care of an adult special needs child is a special needs trust (SNT). In this blog post, we present an overview of how to establish a special needs trust from your child in Ohio.
Parents who are getting ready to set up a trust for the first time may benefit from a brief overview of terms they will see frequently throughout the process of setting up a special needs trust. Key terms you are likely to encounter repeatedly as you set up a special needs trust in Ohio include:
Individuals setting up a special needs trust to ensure their child will be taken care of once they are gone may wish to take advantage of O.R.C. § 5817.10, which allows for the grantor of a trust to submit the trust instrument to a probate court to request a declaration of validity. While the statute directs probate courts to declare a trust valid as long as it meets the terms outlined for Ohio trusts in O.R.C. § 5804.02, securing the declaration of validity can be an easy way for concerned parents to secure some much-needed peace of mind.
According to the Special Needs Alliance, a special needs trust is a particular type of trust that helps to preserve the beneficiary’s access to important resources. While parents can establish a special needs trust for children of any age, SNTs can be especially beneficial for adult children or as preparations are put in place to be ready as they enter adulthood. This is because individuals with special needs often derive a significant portion of their financial support and especially coverage for their ongoing care and medical expenses from publicly-funded needs-based programs (like Medicaid), which take into account the recipient’s personal and in some cases household income. Minor children are typically counted as dependents within their parents’ households; as special needs children enter adulthood, they become subject to a different set of calculations based on their own access to resources.
As a result of the “means-testing” that is typically applied in determining individual eligibility for these programs, many provisions that parents might otherwise wish to make for their adult special needs children can be harmful in that they may restrict or eliminate the child’s access to these crucial services. At the same time, as important as they are, most of these programs are not comprehensive on their own, and in many cases not designed to be the sole support on which an individual (especially a medically-vulnerable person or one who needs regular assistance and support) relies. SNTs do not attempt to circumvent or “cheat” means-testing, but they aim to realistically take into account the special needs individual’s reliance on means-tested programs, and they aim to make financial provisions for the needs these programs will not cover.
Sometimes these trusts are funded with the individual’s own resources, either inherited or, as occasionally occurs after a life-altering accident, with the damages paid in a personal injury settlement. As the Special Needs Alliance explains, this type of “first-party” special needs trust is designed so that the grantor and the beneficiary are the same person. The grantor-beneficiary must be under 65 years of age at the time the trust is formed, and typically the instrument for this type of SNT is written so as to ensure that Medicaid (one of the most commonly-utilized means-tested federal programs) will be reimbursed upon the beneficiary’s death. Depending on the circumstances present in a particular situation, special needs adults who have inherited significant assets (for instance, from a grandparent) may be able to work together with their parents through the Supported Decision-Making framework outlined by the Ohio Developmental Disabilities Council to create and fund a self-settled trust.
Probably more common than self-settled SNTs, third-party special needs trusts are also sometimes called “supplemental” needs trusts due to the role they frequently play in supplementing the beneficiary’s resources. By contrast to a first-party SNT, a supplemental needs trust must be funded exclusively with assets provided by a third party – the grantor and the beneficiary of this type of SNT cannot be the same person.
A third-party SNT can be funded by an inheritance, but only if the assets pass directly into the trust (if they go first to the special needs individual, that necessarily creates the conditions for a self-settled trust). Parents, of course, are third parties and can readily fund a supplemental needs trust to provide for a special needs child, regardless of the child’s age. A third-party SNT will not contain the provision for reimbursing Medicaid, but may instead utilize the trust instrument to provide additional directives to the trustee regarding how the assets remaining in the trust should be handled after the beneficiary’s death.
There are a number of factors that can go into choosing the right type of special needs trust and outlining the terms under which it should be administered. Simply understanding some of the options can go a long way toward developing an appropriate trust instrument, but generally speaking, the terms of any trust should be tailored to the individual situation.
To speak with an estate planning attorney about what that tailoring might look like in a special needs trust for your child, call Rhodium Law today to schedule a personalized consultation. Reach our Cleveland office at (216) 699-8145.
