Alan Jay Ackerman, Esquire has been working with families with Special Needs members to be sure that government programs in the form of Supplemental Security Income (SSI) and Medicaid are put in place for those persons with disabilities in need, as they provide cash benefits as well as important medical coverage and long- term supports and services. The income level and financial resources of an individual with a disability, or family who is applying on behalf of their child with a disability, must not exceed a certain level in order qualify for these government benefits. Benefit recipients are allowed to retain only a total of $2,000 in assets, with some exceptions. A person with a disability receiving SSI, who accumulates more than $2,000 in cash resources, may lose SSI and, possibly, Medicaid.
However, government cash benefits provide only for the bare necessities: food, shelter, and clothing. They amount to less than a federal poverty level income. As we all know, there are more things and activities beyond these basics that add quality to life. For a parent planning for the future of their child with special needs, this poses a problem. When parents are able to care for their child, they provide the extras beyond the bare necessities to make their child¹s life comfortable. But who will provide those resources when they are not there to do so? If parents leave any assets to their child who is receiving government benefits, they run the risk of disqualifying the child from receiving government benefits. If they leave assets to another family member or other person for the care of the child, they open other avenues of risk where the child might not get the benefit of those assets, such as divorce, bankruptcy, lawsuits, and financial mismanagement.
Fortunately, the government established rules allowing assets to be held in trust for a recipient of SSI and Medicaid, as long as certain parameters are met.
These trusts, called Supplemental Needs or Special Needs Trusts (SNTs), preserve government benefit eligibility and leave assets that will meet the supplemental needs of the person with a disability‹those that go beyond food, shelter, and clothing and the medical and long term supports and services of Medicaid. The SNT can fund those additional needs. In fact, the SNT must be designed specifically to supplement, not supplant, government benefits. Money from the trust cannot be distributed directly to the person with a disability. Instead, it must be distributed to third parties to pay for goods and services to be used by the person with a disability.
The SNT can be used for various expenditures such as:
- Out-of-pocket medical and dental expenses
- Eyeglasses
- Annual independent check-ups
- Transportation (including vehicle purchase)
- Maintenance of vehicles
- Insurance (including payment of premiums)
- Rehabilitation
- Essential dietary needs
- Purchase materials for a hobby or recreation activity
- Purchase a computer or electronic equipment
- Pay for trips or vacations, pay for entertainment like going to a movie, a ballgame, concert, etc.
- Purchase of goods and services that add pleasure and quality to life: videos, furniture, or a television
- Athletic training or competitions
- Personal care attendant or escort
When should an SNT be set up?
Parents may consider setting up an SNT when they begin their future planning activities such as drawing up their wills. If their child with a disability will likely have long-term medical or support needs, the SNT can be a vehicle to supply the funding to provide lifetime quality care. Even if the child¹s future prognosis is unclear, it is never too early to put plans in place for contingencies such as the parents¹ sudden death or disability. Contact the office of Alan Jay Ackerman, Esquire by calling (888) AJA-LAWS / (215) 854-6373, or email us, to arrange a consultation.
How is an SNT set up?
The laws governing trusts are complex and are subject to changes in legislation that may vary by state and which could affect a person¹s eligibility for the government benefits that they depend upon. New laws have considerably tightened the eligibility criteria for receiving government benefits and thus have affected many aspects of the way SNTs are drawn up. These regulations are complex and require a strong knowledge of the current legislation and how it impacts people planning for their child with special needs in order to preserve eligibility. Setting up a special needs trust requires coordinated planning with an attorney knowledgeable in special needs planning who can draft a will and necessary trust documents.
When a parent or grandparent dies, additional assets can be distributed, under a will, to the SNT. A percentage of shares in an estate can be left to a child¹s SNT. Funding can come from discretionary contributions while parents are alive, probate distributions, a living trust, life insurance, pension plan, or other sources. Therefore, the individual with a disability does not have to be left out of a will, but should have their share of inheritance directed to his or her SNT. In the case of a life insurance policy, pension plan, or other source that would go to a beneficiary on death, the child¹s SNT should be the beneficiary.
Types of SNTs
There are two types of SNTs. An experienced attorney can explain the benefits and disadvantages of each.
1. Self-Settled SNTs
Often called "Payback" Special Needs Trusts, these are trusts which the Special Needs Person, or his/her parent or guardian, establish which are funded with assets that are the property of the Special Needs Person. Most often these are funds that are coming to the Special Needs Person by way of the settlement of a law suit, or a lump sum award of benefits. Because the assets belong to the Special Needs Person, and he/she has a RIGHT to the assets, a Court permit the establishment of the SNT and a Decree will be entered that the assets be paid into the trust. Upon the passing of the Special Needs Person, or such time as the person no longer has Special Needs, any funds in the trust must be available to the Department of Public Welfare and be subject to liens.
2. Third Party SNTs
These are Special Needs Trusts established by someone other than the Special Needs Person that are for the benefit of the Special Needs Person. The persons creating the trust and funding the trust are not the beneficiaries of the government programs and their funds were never subject to "spend down" or means testing. As such, these trusts do not require Court approval and any assets in the trust at the time the Special Needs Person either dies or cases to have Special Needs are NOT subject to payback or liens to the Department of Public Welfare.
These trusts can be created during one's lifetime or at the time of death. Please read further for additional details.
Testamentary Third Party SNTs These are provisions which are included in the will and funded as part of the probate process of the Last Will and Testament.
Irrevocable Inter-Vivos Third Party Trusts are used in many special needs planning situations. The irrevocable nature of the trust helps protect the money on behalf of the beneficiary who has a disability. Irrevocable trusts can be funded during the life or at the death of the person who is granting the funds. The Social Security Administration, the federal agency that administers SSI, and the state Medicaid agencies, evaluate trusts that have been set up for individuals with disabilities who are receiving government benefits to determine if they are countable resources for those individuals. If the individual has the legal authority to revoke the trust and use the principle of the trust to meet his or her needs for food, clothing or shelter, it is considered a countable resource. All trusts set up with the assets of the disabled person, or all "self-settled trusts" must be irrevocable and meet the requirements of the law to not be considered countable resources for SSI and Medicaid purposes.
