When creating your estate plan, it’s critical to consider the well-being of your loved ones. Since every family has a unique set of circumstances and considerations, there are different ways, like trusts or wills, to help meet your specific estate planning goals.
SNTs, also called “supplemental needs trusts,” benefit children or other family members with disabilities that require extended-term care or that prevent them from being able to support themselves. This trust type can provide peace of mind that your loved one’s quality of life will be enhanced without disqualifying them for Medicaid or Supplemental Security Income (SSI) benefits.
Preserve Government Benefits
An SNT may preserve your loved one’s access to government benefits that cover health care and other basic needs. Medicaid and SSI pay for basic medical care, food, clothing, and shelter. However, to qualify for these benefits, a person’s resources must be limited to no more than $2,000 in “countable assets.” Important note: If your family member with special needs owns more than $2,000 in countable assets, thus making them ineligible for government assistance, an SNT is useless.
Generally, every asset is countable with a few exceptions. The exceptions include a principal residence, regardless of value (but if the recipient is in a nursing home or similar facility, they must intend and be expected to return to the home); a car; a small amount of life insurance; burial plots or prepaid burial contracts; and furniture, clothing, jewelry, and certain other personal belongings.
An SNT is an irrevocable trust designed to supplement, rather than replace, government assistance. To preserve eligibility for government benefits, the beneficiary can’t have access to the funds, and the trust must be prohibited from providing for the beneficiary’s “support.” That means it can’t be used to pay for medical care, food, clothing, shelter, or anything else covered by Medicaid or SSI.
Pay For Supplemental Expenses
With those limitations in mind, an SNT can be used to pay for virtually anything government benefits don’t cover, such as unreimbursed medical expenses, education and training, transportation (including wheelchair-accessible vehicles), insurance, computers, and modifications to the beneficiary’s home. It can also pay for “quality-of-life” needs, such as travel, entertainment, recreation, and hobbies.
Keep in mind the trust must not pay any money directly to the beneficiary. Rather, the funds should be distributed directly — on behalf of the beneficiary — to the third parties that provide goods and services to them.
Consider The Special Needs Trust’s Language
To help ensure that an SNT doesn’t disqualify the beneficiary from government benefits, it should prohibit distributions directly to the beneficiary and prohibit the trustee from paying for any support items covered by Medicaid or SSI. Some SNTs specify the types of supplemental expenses the trust should pay; others give the trustee sole discretion over nonsupport items.
Alert Family & Friends
After creating or revising your estate plan, discuss your intentions with your family. This is especially important if your plan includes an SNT. For an SNT’s terms to remain intact, family members and friends who want to make gifts or donations must do so directly to the trust and not to the loved one with special needs. Contact us with any questions regarding an SNT.