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Planning for the Disabled Beneficiary

Planning for the Disabled Beneficiary

Until recently, a disabled beneficiary was at risk of losing any benefit of an inheritance, and little could be done to protect the beneficiary’s rights. The Pennsylvania courts have now changed this harsh result.

A disabled beneficiary is often a child who suffers either a physical or mental condition which makes gainful employment difficult or impossible. The child may have incurred a crippling injury or a mental illness, or may have mental retardation.

Any of these persons is likely to have a need for public benefits such as Supplemental Security Income (SSI) or Pennsylvania Public Assistance. These programs determine eligibility based in part upon income and other assets of the recipient. A child may receive benefits for some period of years, and then upon a parent’s death, the inheritance may cause the child to become ineligible for the public benefit. The inheritance would then be applied to the child’s living expenses until used in full and then benefits would be restored.

This result arises from the public policy of serving those truly in need. However, most parents do not wish to see their legacy to their child swallowed up in a matter of months, leaving the child with no “cushion” for future crises.

The parent has likely helped to provide the child with extra amenities of life above and beyond the minimum food and shelter covered by the public benefit. Perhaps it has been in the form of a vehicle with a wheel chair lift, or a vacation trip each year, or a computer device to aid communication; whatever the form, the parent has been able to enrich the child’s life.

Looking to the eventual death of the parent, there is great fear as to the child’s future. There are numerous agencies who can assist, and the parent should contact the appropriate persons in advance to best utilize the programs available. The parent will nonetheless fear that the child’s needs will not be met except in the most minimal survival sense.

Recent court decisions now enable the parent to create a trust for benefit of all their children, including the disabled child. Where the disabled child’s share of the trust had formerly been treated as an available resource which affected benefit eligibility, a properly drafted trust can now avoid this result. If the trust provides sole and complete discretion to the Trustee to apply the funds to the needs of several children, with no mandatory duty to apply any specific portion to the disabled child, the courts have held that there is no definable available resource. In this instance, the disabled child receives the usual benefits as before, and the Trustee can choose to assist the child with the special amenities as the parent would, if living.

The severely disabled beneficiary also may be in need of a guardian to make decisions concerning the beneficiary’s living arrangements, health care and numerous other personal decisions. The parent’s Will can nominate a guardian of the person to fill the gap left by the parent’s death, which should thereafter be confirmed by court action.

The parent, having provided for both the financial and personal care of the child can now have peace of mind with regard to the future. The other family members will have a clearer understanding of the parent’s directions and intentions. The disabled child will suffer less upheaval and can continue in the accustomed manner.

In case of a parent’s death with no special needs planning having been done, it is still possible to seek court action. An Executor or special needs beneficiary, or someone acting as guardian for the disabled person, can ask the Court to create a Special Needs Trust. This type of trust must have a “payback” provision, stating that any remaining funds in the trust at the beneficiary’s death must first be used to pay back the Commonwealth of Pennsylvania for care the beneficiary received. The court-created trust is not quite as beneficial as the trust created by the parent during the parent’s life, but is better than a rapid spend-down of the inheritance.

Note also that a badly-drawn estate plan can cause as much harm as no plan at all. As the cost of health care and prescriptions has skyrocketed, disabled citizens have become increasingly dependent upon the availability of Medical Assistance. The Medical Access card is critically necessary to many handicapped people. If a parent has a Will with a common sort of trust provision, directing a trustee to hold the principal and pay only the income to the disabled child, there can be an especially nasty result: the child receives just enough income to disqualify him from the Medical Access card, but not enough to pay for private health insurance. Court action could provide some much needed but costly modification to help this child. Far better would it have been for proper planning to have been done before the hardship occurred.

Special needs beneficiaries require very special estate planning by experienced attorneys. We can help.

By Lisa Pepicelli Youngs, Esq.