A Story About A Special Needs Person And His Mother by E. Wyles Johnson, Jr.

Larry (not his real name) is a remarkable person. Now 50 years old and a NC resident, he was born with Muscular Dystrophy, a disease which requires him to use a motorized wheelchair to get around. He can barely move his extremities and requires 24/7 assistance with transferring, dressing, bathing, toileting, and feeding, some of which is provided by his mother, Brenda, with whom he lives. Because of his disability, he receives Social Security Disability Insurance or SSDI (a government benefit he’s eligible for because he is considered totally and permanently disabled) which provides him with income of about $1,000 a month. Larry also receives Medicaid benefits which cover all his health care costs, including personal care services and very expensive medications. Larry’s eligibility for Medicaid mandates that he own no more than $2,000 in “countable” assets, which includes money. Now, here’s what’s remarkable about Larry – he never let his physical disability stand in the way of living life to the fullest extent possible. While his disability precludes him from driving, he owns a handicap van which gives him some independence. He’s a college graduate, earned an MBA, and is a Certified Financial Planner. He owns a fledging financial planning business and his clientele are his family members.

Brenda, who is age 75, is working with a trusted Elder Law and Special Needs Planning attorney to help her with her estate planning.  She has two other children and wants to treat all three of her children equally during her lifetime and upon her death. Because her house is customized to accommodate Larry’s disability, she wants him to have the legal right to live there for as long as he’s able to do so. She recently made monetary gifts to her two daughters and would like to do the same for Larry, which would substantially improve his quality of life. She also wants to leave him substantial monetary assets upon her death. However, she knows that any monetary gift Larry receives or inherits would impair his continued eligibility for Medicaid benefits – which would be devastating to Larry and his healthcare needs. What should Brenda do?

The solution is for Brenda to establish an “Irrevocable Special Needs Trust” (SNT) prepared by a trusted Special Needs Planning attorney of which Larry is the primary beneficiary and Brenda is the initial trustee. Once the SNT is established, Brenda can transfer her house to it (keeping a life estate interest in it which entitles her to reside there during her lifetime). She can also make monetary contributions to the SNT during her lifetime, as well as leave monetary assets to it upon her death by way of designating it as a beneficiary of her last will & testament. Under the Medicaid SNT rules, none of the assets Brenda transfers to it will be considered “available” to Larry for purposes of his continued eligibility for Medicaid benefits. However, Brenda, as trustee, can distribute SNT assets for Larry’s benefit, such as for his housing needs, a driver for his van, travel costs (including a travel companion), clothing, and entertainment needs.

Upon Brenda’s death, her life estate interest in the house would end, at which time the SNT would own the property in its entirety. The successor trustee (Larry’s younger sister, Beth) can use liquid assets in the SNT to pay all Larry’s house-related expenses, such as maintenance, insurance premiums, and property taxes. In the event Larry’s physical health deteriorates to the point where he can’t continue to safely and practically live in the house and must move to a facility (likely because of the progression of his disease), Beth, as successor trustee, can sell the house since it is owned by the SNT and utilize the sales proceeds inside the SNT for Larry’s further benefit. In addition, in the event, Larry sought eligibility for public assistance to help with the expensive cost of his care in a facility (also likely), by law the assets in the SNT would not count against him for eligibility purposes, but could still be used by the trustee to benefit him. Further, if the SNT is properly drafted as a “third-party SNT”, (which is why Brenda sought the advice of a Board Certified Elder Law Attorney), upon Larry’s death, the assets in the SNT are not subject to “estate recovery” by the State of NC for repayment of the value of Medicaid benefits it paid on his behalf during his lifetime. Instead, all assets remaining in the SNT upon Larry’s death would transfer, under the terms of the SNT, to his two sisters as the designated contingent beneficiaries of the SNT just as Brenda intended.

Now, if you know anything about government long-term care benefits, you may be wondering about the “5-year look back rule”.  In this scenario, it is not a problem. Even in the event Brenda required long-term care before her death and applied for public assistance within five years of her contributions to Larry’s SNT, those contributions would be disregarded in connection with her eligibility for Medicaid long-term care benefits.  Brenda’s informed planning with her attorney ensured that her future and that of her children were secure.

The Medicaid rules applicable to special needs planning and special needs trusts are exceedingly complex, so be sure to retain the services of an attorney certified by the NC State Bar as a specialist in Elder Law whose practice includes special needs planning to assist you with your planning objectives.