Meeting with estate planning attorneys that have experience assisting clients with children, both minors and adults, with special needs and disabilities is essential to making the determination of whether a wholly discretionary trust is right for you and your family and how to best implement it as part of your overall estate plan.
Our office has many clients with special needs children, both minors and adults. These special needs children have a broad range of conditions, but they all have one thing in common: their parents provide them with a lot of “extras” that are not covered by the public assistance benefits they have. For example, Medicaid in Ohio will not provide for the cost of extra clothes for winter, specialized medical equipment, travel expenses to visit friends or family members, or even the small costs of subscriptions to magazines or clubs. All of these items (and much more) can greatly enhance the quality of life for a special needs individual living on public assistance.
In the course of working on estate planning projects for these families, we have to address the best way for parents with special needs children to provide a nest egg to continue providing those extra things beyond the life expectancy of the parents as these children become adults. For families in this circumstance, this issue is extremely important. The process of adjusting to life when a special needs child reaches the age of majority can be difficult, especially given the amount of red tape to help the now special needs adult claim the benefits that are available.
Once a special needs child reaches the age of 18, he or she will be evaluated for means-tested public assistance (e.g. Medicaid) based on the available resources of the new adult without reference to the assets or income of the parents. The ability of parents to use their funds to provide extra things for a special needs adult will not affect the adult’s eligibility since the adult has no legal rights to the parents’ money (even though most parents are quite generous in using it that way). This is the same concept behind using qualified trusts as the vehicle to achieve those ends.
Specifically, a new special needs planning tool became available to Ohio residents back in 2008 with the decision in the case of Pack v. Osborn, 117 Ohio St.3d 14, 2008-Ohio-90. In that case, the Ohio Supreme Court held that a trust that gave the trustee the sole discretion to make (or not make) distributions of income and principal for the beneficiary would be considered as an unavailable resource for purposes of determining Medicaid eligibility.
This new “wholly discretionary trust” approach is a substantial improvement over the other Medicaid qualifying trusts created by Ohio law. The wholly discretionary trust need not have a “payback” provision (the other trusts have either a 50% payback or 100% payback requirement), and it does not have several of the qualifying conditions that the other trusts have.
Prior to the Osborn case, families with special needs children were faced with a dilemma: should they simply disinherit a special needs child and leave that child’s inheritance with another family member or should they use one of the Medicaid qualifying trusts that required some or all of the money in the trust to be paid to the state upon the death of the beneficiary? Neither was a particularly attractive approach. The former left the funds completely at the mercy of the family member and his or her financial situation (it could be lost in a divorce, bankruptcy, or passed along elsewhere at death) while the latter presented leakage to the state at the end.
With the wholly discretionary trusts, there is now an alternative that is better than both prior choices. The trust stands on its own and is not subject to the risks and issues if owned outright by another family member, and it can distribute the funds to other family members after the death of the beneficiary without any money going to the state.
About Arenstein & Andersen Co., LPA
Arenstein & Andersen Co., LPA is a Dublin, Ohio law firm that provides comprehensive estate planning and probate services. Some of our legal services relating to estate planning and probate include: preparing revocable trusts, wills, powers of attorney, healthcare powers of attorney, and living wills; assisting with advanced wealth transfer strategies, including the preparation of irrevocable trusts, such as domestic asset protection trusts, charitable remainder trusts, charitable lead trusts, and life insurance trusts, along with other wealth transfer tools such as family limited partnerships; counseling clients on probate avoidance techniques to streamline and reduce the costs associated with estate administration; assisting business owners with succession and wealth transfer planning; planning for children or other loved ones with special needs to include the use of wholly discretionary trusts, supplemental services trusts, and special needs trusts to protect the beneficiary’s eligibility for public assistance benefits; advising clients on Medicaid planning and other elder care issues; representing Executors, Administrators, and Trustees with the administration of estates and trusts, including assistance with tax planning and the preparation of Federal estate tax returns, and Federal and Ohio fiduciary income tax returns; and assisting with applications for, and the administration of, guardianships for both minors and incompetents.