One of the most difficult issues families will need to deal with is what will happen if they outlive their ill children. After all, we take care of our kids and are there for them, always. We know them, know their history, what treatment works and what doesn’t. What if something happens to us? Who will take care of their financial needs that aren’t covered by Medicaid and social security? There is something that can help put your mind at ease. Special Needs Trusts (SNT) are a financial vehicle for providing for your adult children after you’re gone. With assets held in an SNT, your loved one can still qualify for government benefits like Medicaid and Supplemental Security Income (SSI). There are limits to the amount of cash a disabled person can have and still qualify for these benefits. An SNT is a legal way to transfer funds and still be eligible for benefits. Even if our loved ones don’t need Medicaid or SSI, more programs are available to them if they are considered eligible for benefits. These programs include living skills programs and other programs designed to help our special needs loved ones… Read more.
What is a Special Needs Trust?
A special needs trust is set up for a person with special needs to supplement any benefits the person with special needs may receive from government programs. This trust must be used to supplement government benefits, not replace them. When our loved ones receive federal benefits like Medicaid and SSI, they can have no more than $2000 in their own name. If they have more than that, they can lose their benefits. Of course, no one wants that to happen. If they have more than $2000, or if you plan to leave them more than $2000 when you die, having those funds left to a Supplemental SNT is a legal way to leave the money and protect their benefits.
The funds in the SNT are managed by a Trustee, ideally a professional. The Trustee will decide when and what the funds can be accessed for. They will also take care of paperwork, taxes, reporting requirements, etc. Your loved one will be the beneficiary of the trust, but the trust owns the funds as a separate entity. The beneficiary may not access any of the funds for support or maintenance, they must rely on local, state, or federal agencies for their support and maintenance, and these supplemental funds are used only to supplement the funding from government programs.
How is a Special Needs Trust funded?
A Special Needs Trust (SNT) can be funded by your loved one or by a family member such as parent or grandparent. There are some cases in which the loved one may have received an inheritance. They may have sold real estate or received a settlement from a lawsuit. In any of these cases, an SNT can help your family member remain eligible for Medicaid benefits without losing the cash they’ve received. You might think this is cheating the system, but it’s perfectly legal. (And speaking of legal, I want to make it clear that I am in no way offering legal advice or recommending that anyone go out and get an SNT. I am not an attorney and am only offering information that I’ve compiled from searching the internet.)
Even if your loved one doesn’t need Medicaid to cover medical expenses, there are many services available to them if they are considered Medicaid-eligible. For instance, there are life skills programs in some communities that they can qualify for if they are Medicaid-eligible. There are classes and programs to help them with socializing. They can get reduced-cost utility programs by demonstrating Medicaid eligibility. So even if one is not on Medicaid, there are benefits to our loved ones if they meet the financial qualifications for Medicaid.
Another option is for the SNT to be funded by a third party, such as a parent or grandparent. Parents and/or grandparents may want to leave money to their loved one but may not be comfortable with their loved ones being in charge of the funds. They may also be concerned about their loved ones losing government benefits is they receive an inheritance. To protect their loved one and to protect the funds, the family member may set up an SNT funded by third party funds. These third party funds may also include proceeds from a life insurance policy.
Quite often, our loved ones don’t have sufficient funds to worry about protecting them with an SNT. I know mine doesn’t have money and isn’t likely to. Sometimes, even though our loved ones haven’t had substantial funds, something may happen that triggers receipt of financial settlements. I knew a disabled person whose parents owned the home he lived in. They passed, and he still lived in the home. Eventually, he became too ill to live alone. He was moved to a board and care home and the house was sold. The proceeds from the sale were placed into an SNT so that this person could still receive the Medicaid benefits he needed, and have money set aside for other expenses.
In another situation, a young man received a settlement from a wrongful imprisonment case. The funds he received were put into an SNT. He was still eligible for an government benefits and his trustee can advance funds from the SNT as he sees fit.Professional fiduciaries can be expensive, but well worth it. If the trust is sizeable, a professional is a must. If the trust is relatively small, there is another option. A Pooled Special Needs Trust could be a better option for smaller trusts.
What is a Pooled Special Needs Trust?
A Pooled Special Needs Trust is established and managed by a non-profit organization, usually a 501(c)3 (tax-exempt). A separate account is established for each beneficiary, but the funds are pooled. When the beneficiary passes, the funds for that beneficiary may be added back into the pool. This is a way to avoid the payback rule for Medicaid. However, this must be explicitly stated by the beneficiary at some time prior.
These pooled trusts are already existing, so they are much simpler and less costly to set up. It takes a simple application for an account rather than going through the cost and time of establishing a traditional supplemental SNT.
In most states, there are multiple pooled trusts available. It’s best to do a search on the internet or contact a legal referral source to find one that fits your needs. Shop around. Make sure you’re comfortable with the organization if you choose a pooled trust, and the individual if you go through an attorney. In any case, don’t rush your decision. Your goal is to provide for your loved one after you’re gone. There is nothing more important than that.
This is only a fraction of the information available about Special Needs Trusts. And again, I must make it clear that nothing here should be construed as legal advice. Please speak with an attorney should you need legal advice.
As usual, I hope this information is helpful to you. Please comment with questions, suggestions or other information. For information about how to receive caregiver-centric support, stress-management, and disease-specific tips and techniques (from the convenience and privacy of your own home via telehealth), please visit MyHealios.