Special needs trust - Learn how to provide financial help to your disabled loved ones without disqualifying them for Medicaid or Supplemental Security Income (SSI)

A special needs trust is an effective financial planning tool for helping disabled persons.

The problem:

Here's the rub. Under Medicaid and SSI rules, a recipient must be impoverished, that is, he or she must have no more that $2,000 in assets. There are some assets, such as the personal residence, which are not "countable," but bank accounts, cash and securities must not exceed $2,000.

If an SSI recipient inherits cash or other assets, those assets will likely disqualify the governmental benefits until the assets are spent down. Thus parents or other friends and family members must be careful when planning to help the disabled person. They can't give the person money outright. They can't even create a trust for the disabled person if the trust provides either that income must be distributed to the disabled person or if the beneficiary has the power to require the distribution of income or principal.

The solution:

Using a special needs trust - sometimes known as a "supplemental needs trust" - creates a fund which can be used to help the disabled person without making those funds "countable" for SSI qualification. There are certain strict requirements:

• The beneficiary can not have any right to or control of the funds.
• The trustee must have complete discretion in making distributions to the beneficiary for supplemental purposes.
• The special needs trust must be irrevocable.
• The Trust should state that it is intended to provide "supplemental and extra care" over and above that which the government provides.
• The Trust should state that it is not intended to be for the basic support of the beneficiary.
• If the funding for the trust comes from a third party and not from assets belonging to the beneficiary, there is no requirement to pay Medicaid back after the beneficiary's death. On the other hand, if the funds in any way come from the beneficiary, the trust must provide for paying back Medicaid, to the extent of the Medicaid benefits paid, after the beneficiary's death.

Issues regarding payback:

The trust should contain language regarding paybacks to Medicaid or other such governmental sources. Federal law requires that repayment language must be included in all Supplemental Needs Trusts, whether repayment is required or not. A special needs trust that is funded by parents or other third party sources will not be required to pay back Medicaid.

Click on the following links for more detailed discussions about these areas of law:

Spendthrift Trusts: A Great Asset Protection Tool For Investors.

Bypass Trusts: An effective tool for estate tax reduction.

Our law firm understands trust law and has all the necessary expertise and legal forms to advise our clients about trusts of various types.

For a one-half hour no charge consultation with Dave Guinan, click here.

Return from Special Needs Trust page to Living Trusts Page