Estate planning can carry added significance when a child, spouse, or other loved one has a disability. Leaving assets directly to that person, even with good intentions, could affect their eligibility for certain means-tested government benefits.
A special needs trust (SNT), sometimes called a supplemental needs trust, can be a helpful planning tool for families who want to provide long-term support while considering benefit eligibility rules.
Assist Without Jeopardizing Eligibility
An SNT can help a loved one with a disability maintain eligibility for means-tested government programs while providing additional financial support. Supplemental Security Income (SSI) provides monthly payments to qualifying individuals with limited income and resources, while Medicaid can provide valuable health care coverage. For SSI purposes, an individual generally may have no more than $2,000 in countable resources. Medicaid eligibility rules vary by state and eligibility category.
Not all property counts toward the SSI resource limit. For example, a home used as the beneficiary’s principal residence generally is excluded, as is one vehicle used for transportation. Certain life insurance policies, burial funds and spaces, household goods, and personal effects may also be excluded, subject to applicable requirements. Because the rules governing which assets count can be complex, evaluate eligibility based on the beneficiary’s particular circumstances.
Word The Trust Carefully
A properly structured SNT allows assets to be held and managed by a trustee for the benefit of a person with a disability without being treated as the beneficiary’s countable resources for SSI purposes. The beneficiary generally can’t have unrestricted access to or control over the trust assets. Instead, the trustee determines when and how distributions are made according to the trust agreement and applicable benefit rules.
With those limitations in mind, an SNT’s assets can 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 home modifications. It can also pay for “quality-of-life” needs, such as travel, entertainment, recreation, and hobbies.
Keep in mind that the trust must not pay money directly to the beneficiary. Rather, it must distribute funds — on behalf of the beneficiary — directly to the third parties providing goods and services to them.
Choose The Right Trustee
Selecting the right trustee is an important part of establishing an SNT. The trustee will manage and invest trust assets, make distributions, maintain records, and comply with the trust document.
Just as important, the trustee should understand your loved one’s individual circumstances and how trust distributions may interact with public benefits. You might choose a trusted family member, a professional trustee, or a combination of individuals and professionals, depending on your situation.
Coordinate The Trust With Your Estate Plan
Creating an SNT is only one part of the process. Your other estate planning documents and beneficiary designations should be coordinated with the trust. For example, a will or revocable trust can direct a beneficiary’s inheritance into the special needs trust rather than to the individual outright. Life insurance and certain other assets may also be structured to provide funding for the trust.
Other family members and friends should also be aware of the plan. Those who want to make gifts or donations should do so directly to the trust and not to the loved one with special needs.
Plan For Long-Term Support
An SNT can help provide financial security while preserving access to important benefits. But the rules governing these trusts and government programs are complex. We can help determine how an SNT fits into your overall plan and can best support your loved one for years to come.
