WHAT IS A SPECIAL NEEDS TRUST IN NORTH DAKOTA?

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1 WHAT IS A SPECIAL NEEDS TRUST IN NORTH DAKOTA?

2 There is no universally applicable estate plan. The correct course of action is going to vary on a case-bycase basis. This is why you should discuss everything in detail with a licensed estate planning attorney before you make any assumptions. People who make decisions without knowledge of all of the facts often leave behind messy situations for their loved ones. With this in mind, we will look at special needs trusts in this paper. MEDICAID AND SUPPLEMENTAL SECURITY INCOME You may have a person with special needs in your family, and you may want to provide for this loved one in your estate plan. This is great, but you should be aware of the rules and regulations that govern need-based benefit programs. 2

3 Many people with disabilities require care and treatment that can cost millions of dollars over the course of a lifetime. Health insurance is important for everyone, but for these individuals, coverage is an absolute must. Medicaid is a government health insurance program that is jointly administered by the federal government along with each respective state government. To qualify, you must be able to prove that you have very limited financial resources. People with disabilities who are incapable of earning much income typically qualify for Medicaid coverage. 3

4 Supplemental Security Income is also relied upon by a significant percentage of people with special needs. As the name would imply, this program provides an ongoing source of income. You must meet the eligibility requirements with regard to limited assets if you want to qualify for SSI. Someone who is qualified for Medicaid and SSI is not necessarily going to retain eligibility forever. A change in financial status can render a benefit recipient ineligible. This is something to keep in mind when you are planning your estate. 4

5 SPECIAL NEEDS TRUSTS Now that we have provided the necessary background information about government benefit programs, we can look at the value of special needs trusts. When you fund a special needs trust for the benefit of a loved one with a disability, it is considered to be a third party special needs trust. This is because the assets that are being used to fund the trust are coming from a third party. They are not coming from the beneficiary. You name a trustee when you create the trust agreement. The trustee administers the trust, and the beneficiary cannot direct the actions of the trust or directly utilize funds that have been conveyed into the trust. However, the trustee can use assets in the trust to satisfy the supplemental needs of the beneficiary without impacting government benefit eligibility. These would be needs that are not being paid for by government benefits. When a third party special needs trust is in place, the Medicaid program would not seek reimbursement for monies spent from the beneficiary's estate after his or her death. 5

6 There is another type of special needs trust called a self-settled or first party special needs trust. This type of trust is funded with the beneficiary's own money. The trustee could use assets in the trust to meet the supplemental needs of the beneficiary without impacting government benefit eligibility throughout the beneficiary's life. However, after the death of the beneficiary, Medicaid would seek recovery from the beneficiary's estate. 6

7 SUMMARY People with special needs are often enrolled in the Medicaid program and the Supplemental Security Income program. These programs are only available to people who can prove that they have significant financial need. A direct inheritance could render a benefit recipient ineligible for ongoing coverage. To account for this dynamic, you could make a loved one with a disability the beneficiary of a special needs trust. Under program rules, the trustee could use the assets in the trust to improve the beneficiary's quality of life. These expenditures would not jeopardize benefit eligibility. If you would like to discuss special needs planning with a professional, schedule a consultation with a licensed estate planning attorney. Your attorney will become apprised of your situation, answer all of your questions, and help you put a plan in place if you decide to go forward. 7

8 REFERENCES American Bar Association area_e_newsletter_home/0501_estate_financialplanning.html National Alliance on Mental Health cial_needs_estate_planning/special_needs_trust_primer.htm Nolo 8

9 About the Author Raymond J. German As an attorney in Minnesota and North Dakota, Raymond J. German provides a wide range of estate planning services to his clients, with a primary focus on helping them provide for the security of their loved ones, reduce estate taxes and avoid or at least minimize the costs and delays of probate, all with a well-crafted estate plan. Mr. German defines the mission statement for German Law Group, PC, as "Helping one family at a time pass on values, beliefs and finances, which can be shared for generations to come." Mr. German is well aware of the growing importance of estate planning and dedicates himself to informing the public of the need for careful attention to their specific situations. He is a frequent speaker on a variety of estate planning topics, regularly presenting educational seminars for the public as well as private groups. Raymond J. German approaches each challenge with not just solid expertise, but also remarkable enthusiasm and vigor. By constantly seeking simpler, better, and more effective ways of doing things, he continues to make a real difference in the lives of families and on the way estate planning is practiced by attorneys around the country. German Law Group, PC GRAND FORKS nd Avenue South, Suite O Grand Forks, ND Phone: (701) Toll Free: (800) Fax: (701)