A special needs trust, sometimes referred to as a supplemental trust, protects government benefits of children or other loved ones with disabilities while providing additional future support. Disabled individuals often become ineligible for government benefits when they have assets such as property or money left to them in a Last Will and Testament.
A special needs trust ensures the disabled person will be eligible for Medicaid, Supplemental Security Income (SSI), and other benefits. Our Washington estate planning attorneys are often asked, "What is a special needs trust?" Those who have questions after reading this article are invited to contact Baxter Legal Services at 425-686-0574.
Types Of Special Needs Trusts
Special trusts generally fall under three categories: A first-party trust, third-party trust, or pooled trust. The need for various types of trusts is directly related to SSI regulations.
- First-party special needs trusts (SNT) are designed for those younger than 65 who are disabled and desire to maintain SSI, Medicaid, or other government benefits. The assets of this type of SNT are not meant to replace government benefits, but to supplement them. This type of trust is funded with the disabled person's assets and usually created by a parent, legal guardian, or grandparent. Upon the death of the disabled individual, the government is reimbursed with any remaining assets for medical care costs.
- Third-party special needs trusts are frequently used by parents and family members to provide for a loved one who is disabled. Any type of asset can be held in a third-party SNT including a home, property, life insurance of the grantor, stocks and bonds, cash, securities, investments, and more. Because a third-party SNT is created and funded by a family member, parent, or friend, the beneficiary's Medicaid eligibility and other benefits are not adversely affected.
- Pooled special needs trusts. The United States Social Security Administration compares a pooled SNT to a bank that holds individual account holders' assets; this is because this type of special needs trust holds the assets of many disabled individuals, each in a separate account. A pooled special needs trust must be established through the actions of the disabled person, that person's parents or grandparents, a legal guardian, or a court. The assets of many special needs beneficiaries are pooled, which allows the SNT to make more solid investments. Sometimes referred to as "community" trusts, pooled SNTs are funded by the families of the special needs beneficiaries.
There is much more involved in each of these types of special needs trusts. Consider contacting Baxter Legal Services for additional information and to ensure your loved one’s rights and finances are protected.
How To Utilize Special Needs Trust Funds
There are certain things special needs trust funds can and cannot be used for legally. This section provides general guidelines for what a SNT may be used for without jeopardizing SSI, Medicaid, or other government benefits.
A special needs trust can be used to purchase:
- A home to be used as a primary residence. The value is not an issue unless the special needs individual receives Medicaid, but not SSI. In this case the value of the home may be limited.
- Furniture and other home contents. Furnishings, decor, appliances, electronics, rugs, and other personal effects; this is a broad category in which almost anything is covered.
- One vehicle. Regardless of its value, the special needs individual is eligible to buy a motor vehicle with no impact to SSI eligibility.
- Items necessary for self-support. Whether the beneficiary runs a business or works as an employee, property purchased for work is allowed.
- Life insurance or burial policies. Burial insurance policies of any value are allowed, along with life insurance policies with less than $1,500 in cash surrender values.
- Specific assets toward starting a business, college, or vocational training that assists in achieving self-support. The Social Security Administration describes a plan to achieve self-support (PASS) as a written plan of action for obtaining a specific type of job or beginning a business.
When Special Needs Trusts Cannot Be Used
There are certain "countable" resources that cannot be given to a beneficiary in a special needs trust. These include, but are not limited to:
- Rental properties, vacation homes, and other property not considered the special needs individual's primary residence
- Retirement assets such as 401(k), IRA, and other accounts
- Utilities including water, gas, and electricity
- Mortgage or rent payments
- Groceries or food
- Restaurant meals (apart from being given as an occasional gift)
- Stocks and bonds
- Investment accounts
- Checking and savings accounts
An experienced estate planning attorney can help determine what a special needs trust can be used for, and what it cannot. It is important to keep in mind that if trust money is used for shelter, food, or other things on a regular basis, it can impact the beneficiary's eligibility for Medicaid, SSI, and other government benefits. Additionally, some payments listed above will only result in SSI benefits being reduced by one-third, so the trustee should consider the pros and cons.
Reasons To Consider A Special Needs Trust
Special needs trusts are designed for individuals who are physically or mentally disabled. For those uncertain of whether this type of trust should be considered in their own situations, a skilled and knowledgeable attorney can help. There are a few good reasons to consider a SNT including:
- Setting aside assets for support of the disabled person during your life or following death.
- These types of trusts generate a way to provide assets to the beneficiary and at the same time limit their use. This helps in preserving wealth within the family
- Maintaining the beneficiary's SSI, Medicaid, and other government aid
- Special needs individuals are often not capable of managing finances on their own; a trust designates the trustee who will manage and oversee assets
Consider Scheduling a Consultation Today
There are many complexities associated with special needs trusts, and they can be difficult to understand without the help of an experienced Washington estate planning attorney. Those with physically or mentally disabled loved ones want what is best for their family members, and to ensure their government provided benefits are not compromised. For answers to the question "What is a special needs trust," consider scheduling a consultation with Baxter Legal Services today at 425-686-0574.