Special Needs Trusts What You Need to Know
By Paul Lorrah
What is a trust?
A trust is created when property (real estate, finances, tangible items) is managed by a person for another person's benefit. The person managing the property is called the "trustee." The person whose benefit it is for is called the "beneficiary". The trust lasts as long as it is needed. This usually means the trust will go on until the beneficiary's death or until the funds are expunged.
What is a Special Needs Trust
Special needs trusts are made specifically for the benefit of disabled or mentally ill beneficiaries.
The need for the trust may be because the individual lacks the mental capacity to manage their own finances or they may be able to manage their funds but because of the income and asset restrictions for SSI and Medicaid benefits, they cannot have control over the assets in the trust.
The trust is created with the specific needs, lifestyle, and future of the beneficiary in mind. Often times these special needs trusts are used to ensure that the beneficiaries don't lose government benefits they are receiving. The trustees of special needs trusts can be family members or, if an appropriate and trustworthy family member is unavailable, a third party can be chosen or appointed by the court. Choosing the right trustee must be done very carefully, especially for special needs trusts that are used for the benefit of a younger person.
Why use a special needs trust?
Often times, people with disabilities qualify for government assistance such as Supplemental Security Income (SSI), Medicaid, vocational rehabilitation, and subsidized housing. Many people make the mistake of leaving assets to their disabled loved ones through a will. This is problematic because acquiring assets, such as a lump sum of money, can disqualify your loved one for these types of government assistance programs.
By setting up a special needs trust, instead of solely using a will, you can avoid these issues. Because the trustee has total control over the management of the funds, and the beneficiary does not, government program administrators, like the ones from SSI and Medicaid, ignore the trust assets when considering eligibility.
Special needs trusts can also be used to set up inheritance funds or proceeds from a settlement on behalf of the disabled person. This way, if your loved one is the plaintiff in a successful lawsuit or inherits assets, those funds will go into the trust and will not disqualify him or her from receiving those government benefits. On the flip side, if the beneficiary is ever sued, the funds in his or her special needs trust cannot be touched--they are not subject to any judgment.
What if we are not concerned with government benefits?
The beauty of special needs trusts is that they address the specific needs of the disabled person, whereas, other types of trusts do not. Even if a family is not interested in government benefits, they should still consider a special needs trust to address those specific needs. Furthermore, you never know what the future holds. There is no sense in sacrificing government services that could be beneficial for your disabled loved one in the future.
Types of Special Needs Trusts
There are 3 types of Special Needs Trusts [SNT];
First Party SNT - a first party special needs trust is funded with the assets owned by a disabled person such as those received from an inheritance or personal injury settlement. These trusts can be created by the disabled persons parent, grandparent, court order or as of December 2016, the disabled person themselves can create and fund the trust. The funds in a first party SNT are subject to Medicaid payback provisions.
Third Party [SNT] - a third party SNT is created by a donor – the person who contributes the funds to the trust. These trusts are funded with assets that never belonged to the trust beneficiary and are typically designed as part of the donor's estate plan to receive gifts that can help a family member with special needs while the donor is still living and to manage an inheritance for the person with special needs when the donor dies. These trusts cannot hold assets belonging directly to the disabled Person. Third party SNT's to not have Medicaid payback provisions, however, they do count as transfers for the Medicaid look-back period for the person transferring the asset to the trust.
Pooled Trusts - A pooled trust is a trust established and administered by a non-profit organization. A separate account is established for each beneficiary of the trust, but for the purposes of investment and management of funds, the trust pools these accounts. They can be first party of third party trusts and are generally used when there is no other trustee available for the trusts mentioned above.
How does the beneficiary access the funds in a special needs trust?
Having the trustee directly give your loved one money would disqualify him or her for government benefits. Instead, the trustee must use the trust assets to purchase necessities for your loved one. The trustee can buy services and products, like personal care attendants, vacations, home furnishings, medical and dental expenses, education, vehicles, physical therapy, and even recreation.
What is In-Kind Support and Maintenance
Because the payments received from SSI by a disabled person is meant to pay for food and shelter, if the trustee of a special needs trust pays for the beneficiary’s food or shelter, the amount paid is considered income to the beneficiary. Specifically, it’s called in-kind income or in-kind support and maintenance (ISM). The SSI program treats ISM differently from other types of income.
If the ISM can be assigned a specific value, that amount is deducted from the SSI grant—up to a limit. The amount of the deduction is currently capped at $265 (for 2017). That’s one-third of the maximum federal portion of the SSI grant ($735 in 2017) plus $20.
There are times that paying for shelter and receiving the deduction makes financial sense and other times it does not.
Please consult a specialist to help with your Special Needs Planning to ensure the disabled individual is cared for and the Trustee manages the trust assets properly.
Have questions regarding a Special Needs Trust? Contact us today for a FREE phone consultation... 855.471.6771
By Paul Lorrah
What is a trust?
A trust is created when property (real estate, finances, tangible items) is managed by a person for another person's benefit. The person managing the property is called the "trustee." The person whose benefit it is for is called the "beneficiary". The trust lasts as long as it is needed. This usually means the trust will go on until the beneficiary's death or until the funds are expunged.
What is a Special Needs Trust
Special needs trusts are made specifically for the benefit of disabled or mentally ill beneficiaries.
The need for the trust may be because the individual lacks the mental capacity to manage their own finances or they may be able to manage their funds but because of the income and asset restrictions for SSI and Medicaid benefits, they cannot have control over the assets in the trust.
The trust is created with the specific needs, lifestyle, and future of the beneficiary in mind. Often times these special needs trusts are used to ensure that the beneficiaries don't lose government benefits they are receiving. The trustees of special needs trusts can be family members or, if an appropriate and trustworthy family member is unavailable, a third party can be chosen or appointed by the court. Choosing the right trustee must be done very carefully, especially for special needs trusts that are used for the benefit of a younger person.
Why use a special needs trust?
Often times, people with disabilities qualify for government assistance such as Supplemental Security Income (SSI), Medicaid, vocational rehabilitation, and subsidized housing. Many people make the mistake of leaving assets to their disabled loved ones through a will. This is problematic because acquiring assets, such as a lump sum of money, can disqualify your loved one for these types of government assistance programs.
By setting up a special needs trust, instead of solely using a will, you can avoid these issues. Because the trustee has total control over the management of the funds, and the beneficiary does not, government program administrators, like the ones from SSI and Medicaid, ignore the trust assets when considering eligibility.
Special needs trusts can also be used to set up inheritance funds or proceeds from a settlement on behalf of the disabled person. This way, if your loved one is the plaintiff in a successful lawsuit or inherits assets, those funds will go into the trust and will not disqualify him or her from receiving those government benefits. On the flip side, if the beneficiary is ever sued, the funds in his or her special needs trust cannot be touched--they are not subject to any judgment.
What if we are not concerned with government benefits?
The beauty of special needs trusts is that they address the specific needs of the disabled person, whereas, other types of trusts do not. Even if a family is not interested in government benefits, they should still consider a special needs trust to address those specific needs. Furthermore, you never know what the future holds. There is no sense in sacrificing government services that could be beneficial for your disabled loved one in the future.
Types of Special Needs Trusts
There are 3 types of Special Needs Trusts [SNT];
First Party SNT - a first party special needs trust is funded with the assets owned by a disabled person such as those received from an inheritance or personal injury settlement. These trusts can be created by the disabled persons parent, grandparent, court order or as of December 2016, the disabled person themselves can create and fund the trust. The funds in a first party SNT are subject to Medicaid payback provisions.
Third Party [SNT] - a third party SNT is created by a donor – the person who contributes the funds to the trust. These trusts are funded with assets that never belonged to the trust beneficiary and are typically designed as part of the donor's estate plan to receive gifts that can help a family member with special needs while the donor is still living and to manage an inheritance for the person with special needs when the donor dies. These trusts cannot hold assets belonging directly to the disabled Person. Third party SNT's to not have Medicaid payback provisions, however, they do count as transfers for the Medicaid look-back period for the person transferring the asset to the trust.
Pooled Trusts - A pooled trust is a trust established and administered by a non-profit organization. A separate account is established for each beneficiary of the trust, but for the purposes of investment and management of funds, the trust pools these accounts. They can be first party of third party trusts and are generally used when there is no other trustee available for the trusts mentioned above.
How does the beneficiary access the funds in a special needs trust?
Having the trustee directly give your loved one money would disqualify him or her for government benefits. Instead, the trustee must use the trust assets to purchase necessities for your loved one. The trustee can buy services and products, like personal care attendants, vacations, home furnishings, medical and dental expenses, education, vehicles, physical therapy, and even recreation.
What is In-Kind Support and Maintenance
Because the payments received from SSI by a disabled person is meant to pay for food and shelter, if the trustee of a special needs trust pays for the beneficiary’s food or shelter, the amount paid is considered income to the beneficiary. Specifically, it’s called in-kind income or in-kind support and maintenance (ISM). The SSI program treats ISM differently from other types of income.
If the ISM can be assigned a specific value, that amount is deducted from the SSI grant—up to a limit. The amount of the deduction is currently capped at $265 (for 2017). That’s one-third of the maximum federal portion of the SSI grant ($735 in 2017) plus $20.
There are times that paying for shelter and receiving the deduction makes financial sense and other times it does not.
Please consult a specialist to help with your Special Needs Planning to ensure the disabled individual is cared for and the Trustee manages the trust assets properly.
Have questions regarding a Special Needs Trust? Contact us today for a FREE phone consultation... 855.471.6771
