Special Needs Planning
If you have you been told that your son or daughter, who has a disability, is not allowed to inherit money. That an inheritance will interrupt his or her SSI and Medicaid. That one, who is disabled cannot inherit more than $2,000, because it will interrupt his or her government benefits. Well it is all true! For example, if parents leave money directly to an adult disable child, the gift, if large enough, will disqualify the child from SSI and so from Medicaid until the money is used up. However, to avoid these results you can set up a Special Needs Trust.
A Special Needs Trust is used primarily so that you can leave your loved one money without jeopardizing SSI and Medicaid benefits. Special Needs Trusts allow a disabled persons to receive gifts, insurance proceeds, lawsuits settlements, or other funds and not lose his or her eligibility for certain government benefits. Such trust are drafted so that the funds will not be considered to belong to the disable person in determining eligibility for public benefits. This means that the money won’t be counted as the beneficiary’s resource and so it won’t interfere with eligibility for benefits.
Special Needs Trusts are commonly used in estate planning because parents of children with disabilities are often faced with a dilemma: If they leave assets directly to their child with disabilities, he or she will not qualify for most government benefit programs. A Special Needs Trust can allow a person with disabilities to receive government benefits and still have a source of funds to pay for extras that government programs do not provide. In this way, these trust can enhance the quality of life for a person with a disability. If you want to give or leave money to a loved one who receives Supplementary Security Income (SSI) and Medicaid benefits, creating a special needs trust as part of your estate plan is probably a smart move. The trust will ensure that your loved one can keep SSI and Medicaid benefits while receiving financial help from the money you give or leave in the trust to provide your disabled loved one with a large variety of goods and services while at the same time preserving his or her SSI and Medicaid benefits.
There Are Different Kinds of Special Needs Trusts
There are two basic kinds of Special Needs Trusts: self-settled trusts and third party trusts. A self-settled trust is funded with the disabled beneficiary’s own assets. (A self-settled trust is sometime call a first party trust). For example, a person with a disability who receives a personal injury settlement might put the proceeds into a self-settled trust for his own use. A self-settled trust could also be funded with savings, insurance proceeds, or inherited money.
A third party trust is one that contains assets that belong to someone other than the disabled beneficiary before they were put in the trust. A classic example of a third party trust is one that a parent creates in order to leave an inheritance to a disabled child. A parent can create a third party trust under his or her will, through a separate Special Needs Trust documents, or through a living trust.
Who Can Benefit From A Special Needs Trust:
A third-party special needs trust can benefit anyone 65 or older who relies on SSI and Medicaid, and anyone of any age who has a disability that qualifies him or her for SSI and Medicaid benefits; and if younger than age 65, whether the person has the ability to be gainfully employed.
How Trust Assets Can Be Used
To repeat, the sole purpose of the Special Needs Trust is to provide money for expenses that SSI and Medicaid does not pay for. Those expenses are the beneficiary’s “special needs.” Therefore, if the trust is sufficiently funded the disabled person can receive:
-Spending money, but money CANNOT be used for housing, food, or clothing (reduces SSI benefits)
-Electronic equipment and appliances
-Vacations, summer trips, social events, and sporting goods
-Movies
-Desirable equipment (i.e., specially equipped vans)
-Training and education
-The trust can pay for medical costs not covered by Medicaid
-The trust can be used to purchase a home for the disabled child to live in
-The trust can pay for funeral and burial costs. -
-The trust can pay for home repairs, furniture, and appliances
-The trust can pay for a lot of things.
When the Disabled Beneficiary Dies, What Happens to the Remaining Trust Funds?
In most cases, any funds that remain in a self-settled trust when the disabled beneficiary dies must be used to repay the state for any Medicaid benefits the beneficiary received while he was alive. However, a third party Special Needs Trust does not need to pay back the state. When the disabled beneficiary dies, any funds that are left in the trust can usually pass to other family members
Terminating the Special Needs Trust
The Special Needs Trust ends when is it no longer needed - commonly at the beneficiary’s death. However, there are four reasons to end a special needs trust:
• Trust funds are depleted.
• The beneficiary on longer needs government benefits.
• The beneficiary is no longer eligible for government benefits.
• The beneficiary dies.
