Social benefit programs designed to help people with disabilities typically have restrictions on how much money the beneficiary can have. Caps on monthly income and total assets owned are a major restriction on parents trying to complete an estate plan.
Leaving money directly to a child with disabilities will jeopardize the ability to receive any help from means-tested government programs like Social Security’s Supplemental Security Income (SSI) and Medicaid (Title XIX). A special needs trust can be the answer for parents.
A special needs trust (SNT) can hold money given to or inherited by a disabled individual. Because the SNT owns the assets, the assets are excluded from asset limit tests for SSI or Medicaid. The trust can fund quality-of-life improvements for the beneficiary not covered by Medicaid. The SNT is also a way to ensure that other family members – like the siblings of the individual with a beneficiary – aren’t left with the responsibility and cost of lifelong care.
The SNT must be drafted so that a beneficiary cannot direct distributions from the trust; the distributions must be purely discretionary. There are restrictions on how the money in the trust can be used. There are also reporting requirements to the State. The existence of a trust of any kind must be disclosed for eligibility purposes, but a properly-drafted SNT will keep assets excluded from resource calculations.
Most importantly, the SNT must be drafted so that it avoids any Medicaid payback through Estate Recovery when the beneficiary dies. Standard language that is found in other trusts (like a typical minor child trust or a revocable living trust) risks making the entire balance of the SNT subject to repayment for Medicaid costs.
Choosing a Trustee who can not only manage funds but also predict the needs and challenges of the beneficiary can be tricky. The Trustee needs to understand the specific guidelines under which the SNT can operate.
Because every state has its own system for administering disability benefits, the SNT must be tailored to match those state-specific rules. The SNT is a highly-specialized legal document that requires knowledge of local Medicaid rules and Federal Social Security law. If you have questions, contact an attorney who specializes in estate planning and planning for clients with special needs.