For many Wisconsinites, estate planning is usually not at the top of the “to-do list,” due in part to the confusing, and sometimes intimidating nature, of the vast compliance requirements that come with government assistance programs, retirement accounts, and insurance policies. These challenges can be even more so when one of your beneficiaries is a special needs individual who depends on various public assistance programs to maintain their daily autonomy and support. Because eligibility requirements for these programs are usually based on maximum income thresholds, an annual or a one-time distribution from an estate could have the unattended effect of disqualifying the beneficiary from their benefits.
Therefore, the ultimate question is how do I complete my estate plan without disqualifying my designated beneficiary from their current benefits program?
Current Benefits
Before taking a deeper look into the possible solutions, you must first understand what benefits the beneficiary is currently receiving or may be eligible for in the future. Typically, beneficiaries who have a qualified disability, are usually eligible or have already been receiving government provided income and medical benefits such as Supplemental Security Income (SSI), Social Security Disability Income (SSDI), Medicaid, or Medicare. The beneficiary may also be receiving additional benefit programs offered for Wisconsin residents through Medicaid, such as the Include, Respect, I Self-Direct (IRIS) program, ABLE Accounts, and the Wisconsin Home Energy Assistance Program (WHEAP) to mention just a few. Information regarding the compliance requirements for these programs can be found in the Wisconsin Eligibility Handbook and POMS: Social Security Administration’s Program Operations Manual System.
Pooled Special Needs Trust (SNT)
The first option is to set up a Pooled SNT within your Will or Revocable Trust documents. A Pooled SNT is a separate sub-trust funded by other similarly situated individuals from the state of Wisconsin into one big trust, which is managed by an accredited non-profit organization, such as Wispact. Pooled SNTs can be an attractive option for some situations as these funds, which can be self-funded or third-party funded, are managed by a non-profit trustee who has subject matter expertise regarding publicly provided benefits. However, there are drawbacks to a Pooled SNT that should be considered such as potential Medicaid payback provisions, reporting requirements, and the inability to customize the program to a specific beneficiary’s needs.
Third Party Special Needs Trust (SNT)
The second option is to create a Third Party SNT within your Revocable Trust document. Third Party SNTs are funded by someone other than the beneficiary, and for the sole purpose of supplementing the benefits (not replacing or adding) that the beneficiary is already receiving. Any distribution into a Third Party SNT would not be considered income, so long as the funds are used to supplement qualified expenses already authorized by the beneficiaries’ current plan. Because Third Party SNTs are somewhat more customizable than Pool SNTs, grantors have the option to choose their trustee, or even multiple trustees. Sufficient thought should be placed into the designation of a trustee as they will need to be familiar with the applicable Medicare and Medicaid laws affecting the beneficiary, while also maintaining a sufficient level of competency to administer the Trust according to the terms of the Trust document and applicable law.
Do Nothing
An alternative option to a SNT is, well, do nothing. Depending on the size of the estate, it may be an acceptable risk for the beneficiary to supplement their benefit programs with the funds from the estate, assuming the estate proceeds will last for the life expectancy of the beneficiary. NOTE: You should consult your tax professional before choosing any of these options to fully understand the associated tax consequences.
Conclusion
While incorporating a SNT into a new or existing estate plan can be a helpful option, it is still important to be mindful of the needs of the beneficiary and choose the correct fiduciary(s) for the Trust. As previously mentioned, public benefit programs can be quite complex, and sometimes unforgiving when it comes to program eligibility requirements. Therefore, choosing a trustee(s) and attorney who are both familiar with the requirements set forth in the Wisconsin Eligibility Handbook and POMS: Social Security Administration’s Program Operations Manual System is the best option to ensure that your loved ones are taken care of for years to come.