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Planning For The Financial Independence
and Security of A Disabled Child

What happens when a parent fails to create a supplemental needs trust, during lifetime or at death, and the disabled child receives their inheritance outright, or the child receives funds as a result of a personal injury award? Fortunately, all is not lost. Under the Omnibus Reconciliation Act of 1993 ("OBRA ‘93") Congress specifically authorized the transfer of assets to a self-settled special needs trust, also known as a "1396p(d)4(A) trust," as a means of preserving public benefits. Under OBRA ‘93, the trust must be funded with the assets of a disabled individual under 65 years of age, by a parent, grandparent, legal guardian or the court. As with the third party supplemental needs trust, the trustee may be granted authority to provide benefits over and above those provided by public or private financial assistance. 

The major drawback to the self-settled special needs trust is that, at the death of the beneficiary, the state will have to be reimbursed for Medicaid benefits provided to the disabled child prior to distribution of trust assets to other family members. 

In choosing a trustee to administer the trust, the family should consider the size of the trust assets, the financial ability of the individual and the expected duration of the trust. Where the assets of the trust are small the appointment of a family member who has some investment experience to serve as trustee may be the only practical solution. However, where the assets of the trust are substantial and the trust is anticipated to last for twenty or thirty years, the appointment of a corporate trustee to serve along with other family members is preferable. 

Whether the trust is created as a third party trust or a self-settled trust the advantages are many. The disabled child is able to secure immediate eligibility for public assistance such as SSI or Medicaid. While on Medicaid, the child is able to obtain services at significantly lower cost than the private pay rate. Some programs and services are only available through the Medicaid program. Even if the state Medicaid program has to be reimbursed once the trust is terminated, the availability of public assistance will permit the funds held in the trust to go further in improving the child’s quality of life. 

The attorney who drafts the supplemental needs trust must take into consideration a broad range of both public and private benefit programs, including Supplemental Security Income (SSI) and Medicaid, as well as income, gift and estate taxes issues. In addition to peace of mind, the greatest flexibility is achieved when the trust is set up by a parent or other third party either during lifetime or at death, rather than passing the funds on to the disabled child. As in many endeavors, the most successful outcome is achieved by planning ahead. 

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