Would it surprise you if your professional advisor recommended “special needs” planning when you don’t have any special needs children or grandchildren?

It’s important to think about things that might happen to your loved ones after you’re gone. Especially as they might be affected by your estate plan.

As advisors, we always try to help you plan for unforeseen financial circumstances and build creditor protections for our beneficiaries whenever possible.

The same type of preventive planning can be done to protect loved ones in a tragedy that leads to physical and/or mental disability.

Consider what happened in this situation, taken from the files of one of our colleagues.

John and Elizabeth had one child and several grandchildren. Their estate documents included a living trust that passed their estate to their only son, Jerry, in trust.

At John and Elizabeth’s death, the trust was funded with approximately $1,000,000 after taxes and expenses, which Jerry was free to spend as needed.

The trust provided that if Jerry passed away, anything left in the trust was to be distributed to the grandchildren.

One day Jerry was involved in a terrible automobile accident. Jerry was injured so badly that he was no longer able to care for himself.

The person named as his guardian immediately sought help for Jerry’s medical expenses from Medicaid or other means-based government programs. They were shocked to learn that Jerry’s entire inheritance of $1,000,000 would have to be spent on medical expenses before Medicaid would assist him. As an alternative, the guardian learned that the assets could be placed in a special kind of trust to be used for Jerry’s benefit. But at Jerry’s death, that trust must reimburse Medicaid for what was spent for care during his life. The result in either case is that little or nothing will be left for Jerry’s children.

This result could have been avoided by creating a special needs trust. A special needs trust is specially designed to hold the inheritance of a beneficiary, and to be used for needs above and beyond those covered by government programs. These trusts contain instructions that allow the Trustee to meet the needs of the beneficiary, but prohibit the Trustee from providing for those needs if already covered by Medicaid or other programs. It also prohibits the Trustee from using the assets to reimburse any government program after the beneficiary’s death.

The result in Jerry’s case would be that his needs would be met during his lifetime, and anything left over at the time of Jerry’s death could be passed on to his children.

If you have questions, click here to contact us to set up a time to discuss this with you.

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