Special Needs Planning
"Protecting Special Needs Children And Their Families"
- Special Needs Trusts
Special Needs Planning
Special Needs Trusts
If you are a care giver for a child or loved one with special needs (such as mental or physical disabilities), you probably have worried 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. Oftentimes, Medicaid is the only health insurance that a special needs individual can qualify for. Government benefits only provide 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 a trust, called a “Special Needs” or “Supplemental Needs” Trust for a recipient of SSI and Medicaid, as long as certain requirements are met.
The Rhode Island Special Needs Law Center at Fabisch law, L.L.C. 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 disabled person (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.
How can the funds in a Special Needs Trust be used?
The Special Needs Trust can be used for a variety of life-enhancing expenditures without compromising your loved ones eligibility such as:
How can I make sure my Special Needs Trust has enough funds to provide for my loved one?
As with regular estate planning trusts, special needs trusts can be funded through a variety of ways. The most common forms of funding are direct contributions over the course of your lifetime and life insurance. Because the costs of providing care that a parent may have provided during their lifetime, parents of special needs children should give serious thought to funding a special needs trust with "second-to-die" life insurance policies. These policies can be written to cover both parents, are surprisingly affordable and pay out upon the death of the second parent. Alternatively, in single parent households, such a policy could be written to cover a grant parent and a parent. Because the question of funding can be complex and involves legal, financial, insurance, and tax considerations, our office maintains close working relationships with experienced professionals in these areas to assist in funding decisions.
Frequently Asked Questions About Special Needs Planning
What Is a Special Needs Trust?
Supplemental needs trusts (also known as "special needs" trusts) allow a disabled beneficiary to receive gifts, lawsuit settlements, or other funds and yet not lose her eligibility for certain government programs. Such trusts are drafted so that the funds will not be considered to belong to the beneficiary in determining her eligibility for public benefits. As their name implies, supplemental needs trusts are designed not to provide basic support, but instead to pay for comforts and luxuries that are not available from public assistance. These trusts typically pay for things like education, recreation, counseling, and medical attention beyond the simple necessities of life. (However, the trustee can use trust funds for food, clothing and shelter if the trustee decides doing so is in the beneficiary's best interest despite a possible loss or reduction in public assistance.)
Is there any difference between a Special Needs Trust and a Supplemental Needs Trust?
No, in the past, some practitioners would refer to trusts special needs trusts or supplemental needs trusts differently depending on the part of the internal revenue code that governed its creation. Today however the terms special needs trust and supplemental needs trust can be used interchangeably.
Who can create a Special Needs Trust?
Most often, supplemental needs trusts are created by a parent or other family member for a disabled child (even though the child may be an adult by the time the trust is created or funded). Such trusts also may be set up in a will as a way for an individual to leave assets to a disabled relative. In addition, the disabled individual can often create the trust himself, depending on the program for which he or she seeks benefits. These "self-settled" trusts are frequently established by individuals who become disabled as the result of an accident or medical malpractice and later receive the proceeds of a personal injury award or settlement.
What kinds of Special Needs Trusts are available?
Each public benefits program has restrictions that the supplemental needs trust must comply with in order not to jeopardize the beneficiary's continued eligibility for public benefits. Both Medicaid and SSI are quite restrictive, making it difficult for a beneficiary to create a trust for his or her own benefit and still retain eligibility for Medicaid benefits. But both programs allow two "safe harbors" permitting the creation of supplemental needs trusts with a beneficiary's own money if the trust meets certain requirements.
The first of these is called a "payback" or "(d)(4)(A)" trust, referring to the authorizing statute. "Payback" trusts are created with the assets of a disabled individual under age 65 and are established by his or her parent, grandparent or legal guardian or by a court. They also must provide that at the beneficiary's death any remaining trust funds will first be used to reimburse the state for Medicaid paid on the beneficiary's behalf.
Medicaid and SSI law also permits "(d)(4)(C)" or "pooled trusts." Such trusts pool the resources of many disabled beneficiaries, and those resources are managed by a non-profit association. Unlike individual disability trusts, which may be created only for those under age 65, pooled trusts may be for beneficiaries of any age and may be created by the beneficiary herself. In addition, at the beneficiary's death the state does not have to be repaid for its Medicaid expenses on her behalf as long as the funds are retained in the trust for the benefit of other disabled beneficiaries. (At least, that's what the federal law says; some states require reimbursement under all circumstances.) Although a pooled trust is an option for a disabled individual over age 65 who is receiving Medicaid or SSI, those over age 65 who make transfers to the trust will incur a transfer penalty.
Who can serve as trustee of a Special Needs Trust?
Choosing a trustee is an important issue in supplemental needs trusts. Most people do not have the expertise to manage a trust. An alternative is retaining the services of a professional trustee. For those who may be uncomfortable with the idea of an outsider managing a loved one's affairs, it is possible to simultaneously appoint a trust "protector," who has the powers to review accounts and to hire and fire trustees, and a trust "advisor," who instructs the trustee on the beneficiary's needs.
Fabisch Law, L.L.C.