OVERVIEW OF SPECIAL NEEDS TRUST
If you want to leave money or property to a loved one with a disability, you must plan carefully. Otherwise, you could jeopardize your loved one’s ability to receive Supplemental Security Income (SSI) and Medicaid benefits. By setting up a “special needs trust” in your will, you can avoid some of these problems.
Owning a house, a car, furnishings, and normal personal effects does not affect eligibility for SSI or Medicaid. But other assets, including cash in the bank, can disqualify your loved one from benefits. For example, if you leave your loved one $10,000 in cash, that gift would disqualify your loved one from receiving SSI or Medicaid.
How a Special Needs Trust Can Help
A way around losing eligibility for SSI or Medicaid is to create what’s called a special needs or supplemental needs trust. Then, instead of leaving property directly to your loved one, you leave it to the special needs trust.
You also choose someone to serve as trustee, who will have complete discretion over the trust property and will be in charge of spending money on your loved one’s behalf. Because your loved one will have no control over the money, SSI and Medicaid administrators will ignore the trust property for program eligibility purposes. The trust ends when it is no longer needed ‑‑ commonly, at the beneficiary’s death or when the trust funds have all been spent.
How Trust Funds Can Be Spent
The trustee cannot give money directly to your loved one ‑‑ that could interfere with eligibility for SSI and Medicaid. But the trustee can spend trust assets to buy a wide variety of goods and services for your loved one. Special needs trust funds are commonly used to pay for personal care attendants, vacations, home furnishings, out‑of‑pocket medical and dental expenses, education, recreation, vehicles, and physical rehabilitation.
Who Can Give Property to a Special Needs Trust
Anyone (except beneficiary of the trust) can contribute property to a special needs trust. Although these trusts are most often created by parents for their children, you don’t need any family relationship to create or give money to a trust for someone. And there is no limit to the number of trusts that may be created for a particular beneficiary.
What Types of Property Can Be Held in the Trust
Virtually any type of property can be held in a special needs trust, including real estate, stocks, collections, a business, patents, or jewelry. But because the primary purpose of a special needs trust is to use cash money to pay for items that aren’t provided by SSI or Medicaid, special needs trusts typically give the trustee authority to sell tangible items (cars or jewelry, for example) to raise cash. In order to decide whether to keep or sell tangible items, trustee will need a good understanding of the beneficiary’s personal needs and basic sound investment rules.
How Assets Get Into the Trust
The person who creates a special needs trust often makes the initial transfer of assets into the trust—usually, just a small amount of money. Then, commonly, a parent, grandparent, or other relative leaves property to the trust by:
• Leaving it through a will or revocable living trust directly to the trustee of the special needs trust, or
• Naming the trustee of the special needs trust as a beneficiary on a designation form that controls what happens to a deposit or brokerage account, retirement plan, or stocks and bonds.
Administering the Trust – The Trustee’s Job
After the trust is funded, the trustee role becomes critical. The main job of the trustee is to use trust funds to support the beneficiary without jeopardizing government benefits. In order to do this, the trustee must have a good understanding about how eligibility works – and he or she must be willing to keep up with the law. The trustee also has many other duties, including paying taxes, keeping records, investing trust property, and keeping up to date with the beneficiary’s needs.
How Trust Assets Can Be Used
Trust assets can be used for almost anything that is not illegal or contrary to the terms in the trust. Because the primary purpose of a special needs trust is to enhance the quality of life of the beneficiary with a disability, the list of things that can be paid for is quite broad. Generally, trust funds can be used to pay for:
• Caregiving, such as a personal attendant or therapies not paid for by Medicaid.
• Experiences, such as travel or concerts.
• Services, such as a cell phone, internet, or cleaning service.
• Pet care, such as pet food or veterinarian care, or
• Things, such as a computer, clothing, or new furniture.
Someone With Permanent Special Needs
Special needs trusts are most commonly used for people who likely will need government assistance from the SSI and Medicaid programs their entire lives because of a permanent or severe disabling condition.
Not all persons with a disability qualify for SSI or Medicaid. Someone who is commonly understood to be “disabled” may not qualify for these public benefits if, despite the disabling condition, the person is able to earn a living.
People with blindness, developmental disabilities, Down syndrome, organic brain damage, chronic mental illness, physical paralysis (paraplegia), or congenital disabling afflictions such as cerebral palsy or cystic fibrosis have been the most common automatic beneficiaries of government benefits for persons with disabilities. But there are many other physical and mental conditions that meet the Social Security Administration’s definition of disability and that are likely to last a lifetime.
Someone Who Is Eligible for Medicare or SSDI
A loved one who receives Medicare or Social Security Disability Insurance (SSDI) may not need a special needs trust because these programs do not base eligibility on the amount of money or assets an applicant has. However, if the SSDI payment is low, SSI may be a valuable way to supplement your loved one’s income. And Medicaid may be necessary to provide benefits not included in the Medicare program—for instance, long‑term nursing home care.
Someone Who Cannot Manage Finances
People whose temperaments make it unlikely that they will be able to wisely manage an inheritance are good candidates for a special needs trust, even if they ultimately won’t need SSI or Medicaid. Such trusts are often called “spendthrift” trusts when used to keep assets out of the hands of a beneficiary (and of his or her creditors) and in the firm control of a wise trustee. For example, someone with mild developmental disabilities, mild autism, attention deficit disorder, or bipolar syndrome might benefit from a trust that prevents reckless spending of inherited money even in the absence of a disability.
Another good reason to use a special needs trust is to prevent a loved one with a disability from being the victim of predators. There are many unscrupulous and dangerous people out there who will target a person with mental or physical disabilities if they believe the person has money. A special needs trust prevents a person with a disability from falling prey to these predators because the person with a disability does not have control over trust funds.
The trustee of your special needs trust will manage the trust for the benefit of your loved one. Whether the trustee is you, a relative, a friend, or a professional, the trustee has a critical job as the manager and guardian of the trust. Not only must the trustee spend trust funds in the best interest of the beneficiary (your loved one with a disability), the trustee must also keep up to date on SSI and Medicaid laws, invest trust funds, file taxes, maintain records, and more.
The Trustee’s Basic Duties
Here is a brief list of the duties and responsibilities of a trustee of a special needs trust:
• Avoid any activity that conflicts with the purpose of the trust—which is to enhance the quality of life of the beneficiary.
• Spend money to enhance the beneficiary’s life, while making the trust funds last as long as possible.
• Respond to the beneficiary’s personal needs for goods and services that aren’t covered by SSI or Medicaid.
• Keep up with SSI and Medicaid income and resource rules so that the trustee’s spending doesn’t affect the beneficiary’s eligibility for SSI and Medicaid.
• Invest and manage trust property following the terms of the trust and state law, in the beneficiary’s best interests.
• Keep the beneficiary and other interested persons up to date on trust activity.
• Work together with the beneficiary’s guardian or conservator, if the court has appointed one.
• Keep accurate records, prepare reports that the SSI and Medicaid programs require, and file necessary federal and state tax returns.
• Go to court, if necessary and financially reasonable, to uphold the trust and require the SSI and Medicaid programs to comply with applicable law.
• Terminate the trust, if circumstances warrant doing so.
• Manage or distribute trust property after the beneficiary dies or the trust is terminated.
Non Countable Resources Are Okay
Non countable resources are types of property not considered to be a resource by the SSI and Medicaid programs for purposes of determining the owner’s program eligibility. A beneficiary can usually own a substantial amount of these types of property without losing eligibility for SSI and Medicaid.
So a trustee may use trust funds to buy non countable items such as:
• One home of any value. Owning one home as a primary residence won’t disqualify your loved one from receiving SSI. However, if the beneficiary receives only Medicaid (not SSI), the home value may be limited to $572,000 or $858,000.
• One motor vehicle. The beneficiary can own one motor vehicle, regardless of value, without affecting SSI eligibility.
• Home furnishings and personal effects. These categories are extremely broad and have no limiting definition. Pretty much anything that can fit in your loved one’s home is covered.
• Property essential for self‑support. This category encompasses property that is used for work, either as an employee or running a trade or business. There are limits on the value of these items depending on the rate of return they provide and other variables.
• Assets used toward an occupational goal. Under SSI’s Plan for Achieving Self‑Support (PASS) program, the government allows SSI recipients to use specific assets toward an occupational goal, such as college, vocational training, or starting a business. Under PASS, funds that might normally result in ineligibility, for benefits or lowering the SSI monthly payment, could be used toward an approved occupational goal without penalty.
• Burial and life insurance policies. Life insurance policies with cash surrender values less than $1,500 and burial insurance policies of any value are not counted. However, funds set aside for burial expenses in an account or trust are limited to $1,500 or less.
Countable Resources Are Not Okay
Anyone who owns more than $2,000 worth of countable resources is not eligible for SSI. So a trustee should give the beneficiary any countable asset worth more than $2,000. If a trustee gives the beneficiary countable assets worth less than $2,000, the beneficiary’s SSI grant will be reduced, dollar for‑dollar, in the month the income is received.
Countable resources include:
• Checking and savings accounts
• Stocks and bonds
• Vacation home, rental property, or other real estate that is not the beneficiary’s primary residence
• IRA, 401(k), and other retirement assets
• Investment accounts, and
• Uniform Transfer to Minor Accounts.
How does the SSI program know what and how much a recipient owns? Generally, the bureaucracy relies on the recipient’s own required reports and on information from the IRS, state motor vehicles department, and banks. If for some reason an investigation is begun, the recipient’s financial affairs will be examined more closely.
Terminating the Special Needs Trust
The special needs trust ends when it’s no longer needed. There are four reasons to end a special needs trust:
• Trust funds are depleted.
• The beneficiary no longer needs government benefits.
• The beneficiary is no longer eligible for government benefits.
• The beneficiary dies.
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