Special Needs Trusts

Special Needs Trusts

The primary purpose of a Special Needs Trust (“SNT”) is to provide a fund for a disabled person that will enhance his or her quality of life, while simultaneously protecting the individual’s entitlement to certain government benefits.

You may be wondering:

  • Should I disinherit my disabled child so I do not interfere with his or her means-tested benefits?
  • How will an inheritance, a gift, or a personal injury settlement affect eligibility for public benefits?
  • What is the difference between SSI and SSDI, and what are the eligibility criteria?
  • What public benefits are available for disabled children and adults?
  • What kinds of things can a Special Needs Trust pay for, and what are the restrictions?
  • What are the responsibilities of the trustee of a Special Needs Trust?
    What is a pooled trust?
  • How do we pick trustees to help administer these complex trusts?

People with disabilities, their families, and their loved ones have rights and interests that can be protected. At Rudolph & Edgel, we can answer your questions and help set up Special Needs Trusts to accomplish specific goals and preserve eligibility for means-tested benefits. Special Needs Trusts are a critical component of an estate plan when you have loved ones with disabilities you wish to provide for when you are gone.

Understanding Special Needs Trusts

Many individuals with disabilities receive “means-tested” government benefits that provide income, medical care, and other critical supports. Means-tested benefits are government programs such as Supplemental Security Income (“SSI”) and Medicaid that limit the pool of eligible recipients by imposing financial eligibility rules. If significant assets and income are available to a disabled person, he or she is generally not eligible for assistance.

The resource and income limits for most means-tested benefits are extremely low, making it difficult for many disabled individuals to make ends meet. For example, to receive SSI, a person cannot have more than $2,000 in the bank. The maximum monthly SSI benefit in 2017 is $735. It’s easy to see how difficult it would be to live on $735 per month with nothing but $2,000 to fall back on.

A properly drafted Special Needs Trust provides a fund for a disabled person that will not affect eligibility for benefits. As long as certain criteria are met, funds inside a SNT are not considered to be “available” to the beneficiary, and thus do not count toward the applicable resource limits for various benefits programs. SNTs frequently have other purposes as well, such as providing financial management and oversight for individuals whose disabilities preclude self-management. However, what sets SNTs apart from other trusts is their ability to protect assets from being considered “available” for purposes of means-tested public benefits.

There are two primary types of SNTs; “first-party” SNTs, and “third-party” SNTs. They share many common features, but they also differ in important ways. Both types of SNTs provide funding for “special needs,” which generally means goods and services above and beyond basic food and shelter needs. The most important distinction between first-party and third-party SNTs is the source of the funds contained in the trust. First-party trusts are funded with money that belongs to the beneficiary (i.e., the disabled person), and third-party trusts are funded with money that belongs to someone else, such as a parent or family member of the beneficiary.

The most common of the two primary types of SNTs is the third-party trust. Parents, grandparents and other family members often want to set money aside to benefit a loved one who receives means-tested benefits. However, leaving money outright may jeopardize the person’s eligibility for assistance. A properly drafted third-party SNT preserves eligibility for means-tested benefits while significantly enriching quality of life for an individual with disabilities.

Third-party SNTs are commonly included as part of an estate plan. As a parent, grandparent, friend or caregiver of a person with disabilities, you can include a third-party SNT in your Will or Trust to hold the funds you wish to leave that person. You can rest easy knowing you are enhancing your loved one’s quality of life while preserving the critical benefits that provide for his or her basic needs.

The purpose of a first-party SNT is to protect assets that already belong to a disabled person. Given the strict financial eligibility rules applicable to means-tested benefits programs, most recipients of these benefits do not have significant assets. However, the need for first-party SNTs commonly arises when a recipient of means-tested benefits comes into a sum of money, perhaps through an inheritance or the receipt of a personal injury settlement or judgment.

First party SNTs allow a person with disabilities to place his or her own funds in the hands of a trustee to facilitate eligibility for means-tested benefits. It is not uncommon for a recipient of SSI or Medicaid to receive an inheritance from a relative who did not include a third-party SNT in their estate plan before they died. Receiving the inheritance outright can cause the person to lose eligibility for means-tested benefits. However, benefits can still be preserved in many circumstances by transferring the inheritance funds into a first-party SNT.

There are, of course, many other sources of funds that can potentially jeopardize an individual’s eligibility for means-tested benefits. For example, an individual injured in an accident may receive a personal injury settlement. The funds from the settlement may be insufficient to provide for the injured person’s needs in the long term. And yet, those funds may jeopardize the person’s eligibility for critical means-tested benefits. In many cases, a properly drafted first-party SNT solves this problem, as settlement funds can be placed in a first-party SNT where they will not be counted as a resource for purposes of means-tested benefits.

The law governing first-party SNTs is a bit stricter than the law governing third-party SNTs. For example, a recipient of means-tested benefits may only transfer funds into a first-party SNT if he or she is under age 65, while funds can be placed into a third-party SNT for individuals of any age. Also, funds that remain in a first-party SNT at the death of the beneficiary are subject to a mandatory “payback” to any state Medicaid agency that aided the beneficiary during his or her lifetime. No such payback is required in third party trusts. Despite these differences, first-party SNTs are powerful tools that can dramatically improve quality of life for individuals with disabilities.

Reach out to Us

For individuals with disabilities who need to protect their own funds, Special Needs Trusts are often indispensable. With just a little planning, you can get on the road to protecting your own assets or those of your loved one with disabilities. Call us today:

(503) 248-9535(503) 248-9535