October is Down Syndrome Awareness Month when we come together to celebrate individuals with Down Syndrome and recognize their unique contributions. It’s also a time to raise awareness about the challenges they and their families face in navigating the future.
What is a Special Needs Trust?
When there is a special needs child in the family, estate planning takes on another layer of importance. Ensuring that the special needs family member has the necessary care and financial support throughout their life, especially when they become adults, takes proactive planning. A special needs trust (SNT) is one of the most effective tools for families of special needs loved ones concerned about their personal and financial future.
A trust is a legal tool that holds assets for the benefit of a beneficiary. A trustee manages the assets in the trust according to its terms. A special needs trust is a trust specifically designed to secure the financial future of a special needs individual while preserving their eligibility for government benefits. Because the beneficiary of a special needs trust does not own the assets in the trust, they will not count toward their eligibility for programs like Medicaid or Supplemental Security Income.
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The Benefits of Having a Special Needs Trust
Many individuals with Down syndrome face numerous expenses and require ongoing care and support throughout their life. At the same time, they may rely on many services provided by government programs such as Supplemental Security Income (SSI) and Medicaid. However, eligibility criteria for these benefits is strict and based on the individual’s income and assets.
A special needs trust allows a special needs individual access to funds without sacrificing eligibility for benefits. These funds can be used to pay for various expenses, such as
- Special therapies or treatments not covered by Medicaid
- Transportation
- Educational opportunities
- Hobbies or recreational activities
- Travel and vacations
- Personal care attendants or companions
How Can Government Benefits Be Jeopardized Without a Special Needs Trust?
Supplemental Security Income and Medicaid are vital programs for individuals with disabilities, including those with Down syndrome. While they provide essential financial support and healthcare services, they are also considered needs-based government programs. Consequently, to qualify and remain eligible, the individual must have few personal assets and little income.
This means that families who want to ensure the financial and personal care of their loved one could unintentionally jeopardize their benefits by violating these programs’ rules. There are several ways this could happen.
Direct Cash or Gifts
Because of the government’s strict asset and income limits, receiving direct cash from their family can push a disabled individual over the government limits. Cash or even access to a joint bank account will count against these limits, potentially resulting in a reduction in benefits or even outright disqualification. While well-meaning family members may want to give gifts or pay for things as simple as a vacation, it can count as income or assets depending on how these gifts are given.
Covering Basic Living Expenses
If the family pays for basic living expenses of the disabled individual, such as food, rent, or utilities, it is considered “in-kind support and maintenance” by SSI. When an individual’s basic needs are covered by someone else, SSI may assume less financial assistance is needed and reduce the individual’s monthly benefits by up to a third.
Receiving an Inheritance or Other Lump Sum Payment
When an individual with a disability receives a large sum of money, either through an inheritance, personal injury settlement, or gift, this money can potentially disqualify them from SSI and Medicaid benefits if the funds exceed the programs’ limits.
Families with special needs family members should understand the limitations that come with government benefits and avoid these mistakes. A special needs trust can provide essential resources for their family member while still preserving their eligibility for benefits.
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Types of Special Needs Trusts
There are three main types of special needs trusts. These include:
- First-party special needs trust – This trust is funded with assets that already belong to the individual, such as personal savings, an inheritance, or a personal injury settlement. A first-party SNT is frequently used when the person receives funds that would otherwise disqualify them from benefits.
- Third-party special needs trust – The most common SNT, this trust is generally funded by someone other than the individual, typically a parent, grandparent, or other family member
- Pooled special needs trust – This trust is managed by a non-profit organization and combines resources from many beneficiaries, while still being maintained in separate accounts for each individual.
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How Do You Set Up a Special Needs Trust for Your Family Member?
Establishing a special needs trust will involve many legal, financial, and family considerations. Working with a skilled estate planning attorney will be essential to ensure the trust is structured to correctly meet your and your loved one’s needs.
Choosing Your Trustee
The person you choose as your trustee will be responsible for managing the trust and ensuring the funds are disbursed and used appropriately for the benefit of your family member without jeopardizing their benefits.
Your trustee should be trustworthy, financially savvy, and understand your loved one’s needs. If your trustee doesn’t understand the rules regarding government benefits and the appropriate use of the trust’s funds, they may disburse them in a way that might disqualify your loved one from their benefits. Your trustee must also keep detailed records of how funds in the trust are used. You may choose a family member, friend, professional trustee, or institution to act as trustee.
Defining the Purpose and Use of the Trust
Your trust document should specifically outline how the funds should be used and what expenses it can cover to keep compliant with government benefit eligibility criteria. The goal is to enhance your loved one’s quality of life without risking the loss of their benefits.
Funding the Trust
You can fund the trust with many assets, including cash, real estate, investments, and life insurance policies. Many families of special needs individuals will include a special needs trust as part of their broader estate plan to ensure their family member’s continued care if they pass away.
Notifying Relevant Parties
After the trust is established, it’s important to notify family members and other relevant parties about its existence. That way, gifts, inheritances, or other financial contributions will be directed to the trust instead of the individual.
What Things Can’t Be Paid For Using Funds From a Special Needs Trust?
A special needs trust is designed to provide supplemental financial support while preserving government benefits. However, there are specific rules about what the trust can and cannot pay for.
Funds from the trust cannot pay for
- Basic food and shelter expenses – Supplemental Security Income covers basic needs such as shelter and food. This includes rent, mortgage payments, property taxes, homeowners’ insurance (if escrowed by the mortgage company), utilities, or groceries. Using trust funds for these expenses could reduce or eliminate your loved one’s SSI benefits.
- Any services covered by Medicaid – Medicaid provides healthcare coverage for individuals with disabilities. Consequently, trust funds should not be used to pay for medical procedures, medical care, medications, or medical equipment already covered by Medicaid. However, the trust can pay for things that are considered non-Medicaid services or supplemental services, such as alternative treatment or private care not covered by Medicaid.
- Direct cash to the beneficiary – Any cash disbursed to the beneficiary from the trust is considered income and could disqualify them from benefits.
- Gifts or donations to others – An SNT is intended solely for the benefit of the special needs beneficiary. Trust funds cannot be used to make gifts or donations to other people or charities on their behalf.
- Purchases of non-essential items – While trust funds can be used to improve the beneficiary’s quality of life, any extravagant or non-essential luxury purchases could be regarded as excessive and unnecessary and might affect government benefit eligibility.
While special needs trusts provide a powerful tool for families to support loved ones with disabilities, they do come with limitations that ensure the individual remains eligible for benefits. These trust funds must be used judiciously to avoid paying for things that could disqualify the individual from benefits. By using the trust only to cover supplemental expenses, a family can enhance their loved one’s quality of life while safeguarding their access to government benefits and support.
Down Syndrome Awareness Month can serve as a good reminder for families to begin to address and plan for their loved one’s future. A special needs trust affords your loved one financial protection, safeguards their critical government benefits, and also offers you and your family peace of mind. Contact the experienced estate planning attorneys at Melone Hatley, P.C. today at (877)395-5598 for more information about special needs trusts and planning for your special needs loved one’s future.
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