A special needs trust is a legal device that is used to provide an inheritance to a person with a disability. We are going to look at the ways that the trustee can utilize the assets, but before we get there, we will share some fundamental facts to provide context.
Need-Based Government Benefits
Everyone needs health insurance, but it is absolutely essential for people with disabilities that will need expensive care throughout their lives. Many of these folks cannot work, so they do not get health insurance through their employers.
Medicaid is a government health insurance program for people with limited resources, so this is the widely embraced solution. Income is also important, and the Supplemental Security Income (SSI) program exists to provide modest financial support for individuals with disabilities.
Once eligibility has been granted, it is not necessarily permanent. A significant change in financial status can disrupt the benefits, and this is why special needs trusts are used to provide for people with disabilities.
What Can the Trustee Provide?
When a special needs trust has been established, a trustee will be named to act as the administrator. Any mentally competent adult that is willing to assume the role can technically act as a trustee, and there are professional fiduciaries that offer trustee services.
The beneficiary of a special needs trust would not have direct access to the funds, but the trustee would have broad latitude to use the resources to make the beneficiary more comfortable.
Under the guidelines, the assets in the trust do not replace the benefits; they supplement the SSI and Medicaid benefits. As a result, the trustee cannot pay for essentials like food, shelter, and clothing without impacting the SSI benefit.
However, this can be worthwhile under some circumstances. The expenditures will be in-kind income, which is classified differently than other types of income. It would reduce the monthly benefit, but it would not affect Medicaid eligibility.
This is a list of some of the goods and services that can be provided for the beneficiary without conditions:
- A motor vehicle with or without special equipment
- Uncovered Medical, dental, and therapeutic treatments
- Vacation expenses
- A companion
- Training and education costs
- Computers, appliances, and other electronic equipment
- Entertainment and recreation
Medicaid Estate Recovery
If a person with a disability receives a windfall through a personal injury settlement or judgment, insurance proceeds, or some other source, the funds could be used to establish a first party or self-settled special needs trust.
The trustee would have the same ability to satisfy the supplemental needs of the person in question without impacting government benefit eligibility. However, Medicaid is required to seek reimbursement from the estates of deceased beneficiaries.
This is called Medicaid estate recovery, and the assets that are left in a first party special needs trust would be available to Medicaid during the recovery phase.
On the other hand, if you establish a special needs trust for the benefit of someone else with your funds, it would be a third party trust. A successor beneficially that you name would inherit the remainder, and Medicaid would not be able to reach the assets.
Access Our Estate Planning Worksheet!
We have many resources on this site that you can access any time, including our estate planning worksheet. This tool has been carefully prepared to provide you with a better understanding of the process, and it is being offered free of charge.
You can get your copy right now if you head over to our worksheet access page and follow the simple instructions.
Need Help Now?
If you are interested in working with a Rochester estate planning attorney to put a plan in place, there is no time like the present.
You can schedule a consultation appointment right now if you call us at 585-374-5210, and you can use our contact form if you would prefer to send us a message.
- How Estate Planning for a Family May Trap the Unwary Practitioner - August 31, 2022
- State Income Taxation of Social Security Benefits - August 24, 2022
- Understanding Tax Apportionment Clauses - August 17, 2022