Special Needs Planning

A concern of every parent with a special needs or disabled child is how to financially provide for the child after the death of the parent. Special needs trusts (sometimes referred to as “supplemental needs trusts”) are used primarily to provide non-support benefits to family members suffering from disabilities or who have special needs. If the more typical support trust is used, governmental benefits may be denied for which a disabled person is otherwise entitled. In addition, governmental benefits do not cover all of the needs of a disabled person. Therefore, a supplemental needs trust may be established to provide for those additional (or supplemental) needs. Such needs include experimental medical treatments, dental and eye care not otherwise provided, vacations, entertainment devices, professional fees, and companions.

Typically two types of special needs trusts are used. The first type is a third-party special needs trust, which is created by someone other than the special needs beneficiary. The second type is referred to as an “OBRA” special needs trust (also called a “first-party special needs trust”), an acronym for the Omnibus Budget Reconciliation Act of 1993 (OBRA).

Third-Party Special Needs Trusts

Funded with assets owned by someone other than the disabled beneficiary. This can be a parent, grandparent, sibling or friend. Third-party special needs trusts provide great flexibility because the individual funding the trust has no legal obligation to support the beneficiary.

OBRA Trusts

Funded with assets owned by the disabled individual, OBRA trusts are typically used in situations where a disabled beneficiary received assets through an inheritance, personal injury award or property settlement payment. In order to avoid disqualifying the disabled person from means-tested government benefits (such as Supplemental Security Income (“SSI”) and Medicaid), an OBRA trust is created to hold the assets. A properly drafted OBRA trust is exempt from the general rule that assets held by a self-funded trust are considered “countable assets” for means-tested benefits.