The cost of care for someone with special needs can be very high, and as a result special needs individuals often rely upon public benefits for care and support. Programs like SSI and Medicaid, for example, will only provide benefits so long as the individual has limited income and fewer than $2,000 in assets. This can be a problem when someone who receives SSI or Medicaid receives an inheritance, or perhaps a settlement from a personal injury case.
The benefits provided by SSI and Medicaid are minimal by design, and don’t provide benefits for anything beyond basic needs. Even so, these programs are very valuable for special needs individuals who cannot work to support themselves.
An inheritance that leaves a Medicaid or SSI recipient with more than $2,000 in assets would result in the individual being disqualified. By undertaking a little planning, however, an inheritance, personal injury settlement, or other windfall can be preserved to provide for the “supplemental needs” of a Medicaid or SSI recipient.
> First Party Supplemental Needs Trusts
One kind of Special Needs Trust (SNT) is sometimes called a “First Party” Special Needs Trust, or a “d4A” trust (after the U.S. Code section that governs these kinds of SNT’s).
These kinds of trusts must be created by a disabled individual’s parent, grandparent, or legal guardian, or it must be created by court order. These kinds of trusts are used when the trust is being funded with the disabled individual’s own money.
For example, Billy, who has special needs and receives SSI and Medicaid Benefits, receives a personal injury settlement of $50,000. Normally, this money would disqualify Billy from receiving SSI and Medicaid benefits until he spent his assets back down below $2,000.
Instead of merely spending his money down, Billy’s legal guardian establishes a Special Needs Trust to hold the money. This trust provides that the funds are to be used to provide for Billy’s supplemental needs that are not provided for by Medicare and Medicaid. For example, these funds might be used to help purchase or maintain a home for Billy, to pay for items not covered by Medicaid (e.g., motorized wheelchair, dental and vision care, etc.), or to provide him with enrichment experiences.
In return, the trust established for Billy must be irrevocable and must be funded before the special needs person reaches age 65. In addition, any money left at Billy’s death must be used to pay back the government for the benefits Billy received during his life.
> Third Party Special Needs Trusts
Sometimes a loved one wants to provide for a special needs person as part of their estate planning. In this scenario, a Third Party SNT can be used to provide for a loved one while maintaining eligibility for valuable government benefits.
For example, Mr. Smith would like to provide an inheritance of $50,000 to help care for Billy, his special needs grandson. In his will, he leaves a gift in that amount to Billy in a Third Party SNT.
After Mr. Smith dies, the trust for Billy is funded, and he has a $50,000 resource to help pay for supplemental needs not covered by government benefits. Even better, because the trust was created by a third party (Mr. Smith) there is no payback provision. This means that any money remaining in the trust at Billy’s death does not have to be paid back to the government—instead it can pass to a contingent beneficiary.
> Pooled Trusts
A Pooled Special Needs Trust (also called a “d4C” Trust) used to pool the resources of a large number of special needs individuals. These kinds of trusts must be managed by a non-profit organization, like the Alabama Family Trust. As with the other kinds of SNT’s, the funds are available to pay for the supplemental needs of special needs individuals.
As with a First Party SNT, any funds remaining at the death of the special needs individual must be used to pay back the government for the cost of that individual’s care. Unlike a First Party SNT, however, an individual over age 65 may take advantage of a Pooled SNT to preserve assets.
Pooled SNT’s are often used as part of a Medicaid spend-down to help an elderly individual qualify for Medicaid long-term care benefits. Rather than spending all of their remaining funds on the cost of the nursing home, the individual can create a Pooled Trust account to protect some of their remaining assets.
The money deposited into the individual’s pooled trust account may be used to pay for supplemental needs not covered by Alabama Medicaid. For example, the trust funds may be used to pay for a single room, rather than a “semi-private” room, or to pay for an afternoon sitter for patients with Alzheimer’s or dementia.
Another advantage of a pooled trust is that the family gets the benefit of professional trust management. It is not uncommon for private trust companies or trust departments at banks to require a minimum level of assets (as much as $500,000 or more) before they will undertake management of a trust fund. A pooled trust provides cost-effective professional management for SNT’s funded with as little as a few thousand dollars.
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