Estate Planning When a Loved One has a Disability
This year this article is following a hypothetical couple through their lives to see what role estate planning had on their family. To review prior articles, go to SeamonLawOffices.com/Blog.
Our story follows a couple I refer to as “John” and “Sue”. We initially worked together to establish their initial estate plan when they were young parents. They became the guardians of John’s 10-year-old nephew whose mother passed away. Unfortunately, Joey had some developmental deficits when he came to live with them, and they have recently been informed that Joey is on the autism spectrum. At our previous meeting, they knew this could be the outcome, but given Joey’s difficult childhood, they were still going through the process of determining how much his developmental delays were related to his upbringing and how much was due to a potential diagnosis.
Now that we know that Joey’s issues are likely serious enough to qualify him for means tested benefits such as certain Social Security and Medicaid benefits, updates need to be made to their estate plan. When a beneficiary of an estate or even a large gift is on means-tested benefits, it is very important to manage that inheritance or gift properly. John and Sue had researched supplemental needs trusts (“SNT”) and the West Virginia ABLE accounts but they were confused as to which option would be the best solution.
We began our discussion with the ABLE accounts, these are very useful for persons who the Social Security Administration qualify as disabled by the age of twenty-six years old. They are similar to a 529 Plan accounts. There are limitations to how much money can be deposited into an account on an annual basis but generally it is now $16,000 total per year from all combined sources. Most people are unaware that there is a Medicaid payback with these accounts when the owner passes away with funds in the account. But ABLE accounts are great tools to give Joey flexibility and autonomy in handling money himself.
By contrast a SNT is a tool that could receive the inheritance or gift without limitation and does not have a Medicaid payback. The disadvantage of the SNT is that you need an attorney to draft the trust and they can be a bit complicated to manage for a lay person so sometimes professional trustees are utilized.
John and Sue were very confused by all of this and were uncertain which tool would be best for Joey. The answer is both. The SNT can receive larger gifts or inheritances without adverse consequences to Joey’s benefits and if there are funds left in the trust upon Joey’s death, the remainder can be distributed to whoever John and Sue choose. The trust can also be used to add funds to his ABLE account from time to time providing Joey a flexible tool to use for spending money as he gets older.
They had concerns regarding who should manage Joey’s trust since public benefits can be very complicated, so we set up a meeting with the folks at the West Virginia PACE Trust Fund. PACE serves as a professional trustee for a pooled SNT and in the future, PACE will also serve as trustee of standalone SNTs. We decided it would be a good idea for them to meet with the folks at PACE while we worked on their estate plan, and while their financial planner set up the ABLE account. They were relieved that they could work on all three aspects simultaneously!