Inheritance Protections Plus Benefits Through Effective Trust Planning for Grandparents

It is common for grandparents to want to pass on a legacy from their estates to their grandchildren either immediately or over time. However, they should know that care must be taken when passing funds to grandchildren with special healthcare needs and/or disabilities. If done incorrectly, this transfer could render the child ineligible to receive government benefits and lead to the loss of valuable income and assistance critical to daily care.

When done properly, a supplemental support trust, or “special needs” trust, will protect the grandchild’s inheritance without adversely impacting current or future governmental benefits. Grandparents often include these trusts in their wills or existing revocable trusts to handle financial gifts made for the benefit of a disabled grandchild. The gifts, tucked away in a supplemental support trust, are often used to cover comforts and luxuries and may also be used for broad purposes including education, medical, vacation and residence.

A supplemental support trust provides essential protections for a beneficiary receiving needs-based governmental benefits where eligibility is based on the beneficiary’s income and resources. While an inheritance received by a beneficiary outright would result in the inherited assets being counted as a resource. In addition, to the extent they exceed the resource limits, the beneficiary will be disqualified from receiving those benefits.

Grandparents considering making gifts to a special needs grandchild should consider the following important aspects of a supplemental support trust in their estate planning:

• A qualified independent trustee;
• A properly drafted trust agreement that meets legal requirements;
• If funded with assets of the grandparents, there is no need to provide for any reimbursement to any governmental agency providing support to the grandchild;
• The trust may contain broad provisions for the benefit of the grandchild for a lifetime and then name ultimate beneficiaries after the grandchild passes away; and
• Flexibility exists where grandparents provide for a supplemental support trust to be funded at death because it can be modified during the grandparents’ lifetimes.

Grandchildren or other beneficiaries need not choose between receiving an inheritance and receiving benefits under governmental assistance programs. Beneficial use of both are possible when grandparents’ trust planning include supplemental support trust. Estate planning documents can provide for these protections after the death of a grandparent.

Contact a Washington Trust Planning Officer at 800-582-1076 or email us at [email protected] for smart advice that’s focused on your unique financial goals.