Special Needs Planning
Special Needs Trust
Special Needs Trusts are a critical component of your estate planning if you have disabled beneficiaries for whom you wish to provide after your passing. Generally‚ Special Needs Trusts are either stand alone trusts funded with a separate asset like a life insurance policy or they can be a sub-trust in your existing living trust.
If you currently provide care for a child or loved one with special needs (such as mental or physical disabilities)‚ you must have contemplated with concern about what may happen to them when you are no longer able to provide and care for them.
While you can certainly provide that they receive money and assets‚ such a bequest may prevent them from qualifying for essential benefits under the Supplemental Security Income (SSI) and Medicaid programs. However‚ public monetary benefits provide only for the bare necessities such as food‚ housing and clothing. As you can imagine‚ these limited benefits will not provide those loved ones with the resources that would allow them to enjoy a richer quality of life. But if parents leave any assets to their child who is receiving public benefits‚ they run the risk of disqualifying the child from receiving them. Fortunately‚ the government has established rules allowing assets to be held in trust‚ called a “Special Needs" or “Supplemental Needs” Trust for a recipient of SSI and Medicaid‚ as long as certain requirements are met.
Our expert special needs planning lawyers can help you set up a Special Needs Trust so that government benefit eligibility is preserved while at the same time providing assets that will meet the supplemental needs of the person with a disability (those that go beyond food‚ shelter‚ and clothing and the medical and long term supports and services of Medicaid). The Special Needs Trust can fund those additional needs. In fact, the Special Needs Trust must be designed specifically to supplement‚ not replace public benefits. Parents should be aware that funds from the trust cannot be distributed directly to the disabled beneficiary. Instead‚ it must be disbursed to third parties who provide goods and services for use and enjoyment by the disabled beneficiary.
The Special Needs Trust can be used for a variety of life-enhancing expenditures without compromising your loved ones’ eligibility such as:
- Annual check-ups at an independent medical facility
- Attendance of religious services
- Supplemental education and tutoring
- Out-of-pocket medical and dental expenses
- Transportation (including purchase of a vehicle)
- Maintenance of vehicles
- Purchase materials for a hobby or recreation activity
- Funds for trips or vacations
- Funds for entertainment such as movies‚ shows or ballgames.
- Purchase of goods and services that add pleasure and quality to life: computers‚ videos‚ furniture‚ or electronics.
- Athletic training or competitions
- Special dietary needs
- Personal care attendant or escort
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Special Needs Frequently Asked Questions
A special needs trust (SNT), also called a supplemental needs trust, is a trust that holds assets for the benefit of someone with a mental or physical disability who is receiving Medicaid or Supplemental Security Income (SSI). An SNT is structured so that the disabled beneficiary can continue to receive these government benefits even though the trust holds assets that exceed the allowable asset guidelines for these programs. Since the funds are meant to supplement, not supplant, government benefits, there are restrictions on how funds can be used.
A first party supplemental needs trust, also called a or self-settled trust, is created with assets belonging to a disabled person for his or her own benefit. In New York State, the person must be under 65 to create the trust. The first party supplemental needs trust must include a “payback provision” to Medicaid. This payback clause states that any funds remaining in the trust at the beneficiary’s death must be used to reimburse Medicaid the cost of care for services rendered during the beneficiary’s lifetime. Only after Medicaid is paid back can other individuals inherit assets.
A third-party supplemental needs trust is created for the benefit of a disabled individual using someone else’s funds. This type of SNT does not have to reimburse Medicaid and can name beneficiaries who inherit upon the death of the disabled individual.
Supplemental needs trust are set up for disabled individuals who receive means-based public benefits:
- by parents or other family members for disabled individuals who want to ensure that the disabled individual has funds available to supplement their lifestyle without forfeiting government benefits and programs; or
- by or for the disabled individual from a personal injury settlement or inheritance to maintain the government benefits. Note that nobody should leave assets to a disabled individual who receives means-based government benefits based– any inheritance should be left in a third party SNT.
Means-based government benefits are public benefits that are only available when certain strict income and asset guidelines are met. In NYS, this would be Medicaid and Supplemental Security Income (SSI). Neither Social Security Disability Insurance (SSDI) benefits nor Medicare are means-based so an SNT may not be needed for such disabled individuals.
What can or cannot be paid from a supplemental needs trust ultimately depends on what is considered countable income and assets for purposes of eligibility for the particular government benefit the disabled individual is receiving. The trustee may not make any direct payments to the disabled person and may not use the funds of the trust to pay for anything that the government benefits already provide. In practice, this most often means complying with Supplemental Security Income (SSI) guidelines. Any unearned income reduces the SSI benefit- dollar by dollar - by the amount of the income.
Therefore, all distributions from the trust have to be made to the provider of services, not outright to the disabled person. The disabled individual can have certain exempt assets in his or her name. These include, but are not limited to, a home, household furnishings, a car, term life insurance, a burial plot. The trustee of the supplemental needs trust may not give cash payments to the beneficiary, but can purchase goods or services with trust assets for the sole benefit of the SSI recipient. For example, the Supplemental Needs Trust can pay for summer camp, a computer, car service, clothing, a vacation or a van. This greatly improves the disabled person’s life without the loss of necessary government benefits.
Anyone but the disabled individual can be the trustee of a supplemental needs trust.
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