Why should we consider Special Needs Trusts (SNTs)? Because Medicaid may be your loved one's only way of securing health care benefits; SSI benefits may be your loved one's only source of income, and ... they can lose those benefits if someone else tries "to help them" the wrong way.
Both Medicaid and SSI are "means tested" programs. In plain language, to qualify for a means-tested program, you must be poor enough under the program rules (e.g., the SSI or Medicaid rules). However, as important as Medicaid is, you should also keep in mind that it "won't put groceries on the table!" Medicaid pays health care bills, but never puts money in the beneficiary's pocket. So, while we may want to help our loved ones "with the groceries" (or otherwise - keep in mind that there is more to life than having your medical bills paid), we don't want to do it in a way that causes our loved ones to lose Medicaid and SSI. That is where Special Needs Trusts come into play. Simply put, SNTs are important tools that help us qualify for Medicaid and SSI and, at the same time, meet other needs that an elderly or disabled person experience. In some ways, SNTs let us have our cake and eat it too.
Here are some examples of circumstances where a special needs trust might be helpful:
- Rodney, forty-five years old, has schizophrenia and receives SSI. His parents want to leave money for his benefit after they die. If that money goes into a special needs trust, then Rodney keeps SSI (and Medicaid), while his parents' money is used to enhance his quality of life.
- George, who is twenty-three years old, was involved in a motor vehicle collision that left him paralyzed. His health care costs are substantial. Placing his excess resources into a special needs trust accelerates his eligibility for Medicaid so his health care bills get paid. If he receives money as a result of the collision, it can also go into the trust. Funds placed in the trust do not count toward his Medicaid eligibility.
Special needs trusts can be used to fund a variety of supplemental needs ranging from:
- A home, including adjacent land, if the beneficiary lives there or intends to return to it;
- Health and dental treatment and equipment for which there are not funds otherwise available;
- Rehabilitative expenses and occupational therapy services;
- Medical and diagnostic treatment beyond Medicaid benefits, even though not medically necessary or lifesaving;
- Medical insurance premiums;
- Supplemental nursing care;
- Supplemental dietary needs;
- Private case management;
- Cultural experiences;
- Expenses associated with bringing relatives or friends to visit with the beneficiary;
- Telephone service and answering machines;
- Television and cable equipment and services;
- Radios, stereos and musical instruments;
- Training and education programs;
- Caretaker Expenses;
- Recreation, entertainment and travel for the beneficiary and a caretaker;
- Purchase of furniture for the beneficiary;
- Purchase of an automobile for transportation to medical treatment;
- Renovations to a house to adapt to the needs of the beneficiary;
- Cost of adapting a car or van to the needs of the beneficiary;
- Reading and educational materials;
- A burial plot and pre-paid burial expenses.
There are two varieties of Special Needs Trusts: those created with the beneficiary’s money (self-settled) and those created with someone else’s money (third-party). Federal and state law recognize two versions of the self-settled SNT. First, some beneficiaries may establish individual trusts pursuant to 42 U.S.C. § 1396p(d)(4)(A) (referred to as a “d4A trust”). Second, those who do not meet the criteria necessary to establish a d4A Trust are usually eligible to fund a pooled trust pursuant to 42 U.S.C. § 1396p(d)(4)(C) (referred to as a “d4C Trust” or “pooled trust”).
The general rule is that when a Medicaid or SSI beneficiary transfers assets to another person, they are penalized. Special Needs Trusts are an exception to the transfer rules. A Special Needs Trust is a discretionary spendthrift trust created for a disabled beneficiary which supplements but does not replace public benefits for which the beneficiary may be eligible. An SNT must be carefully drafted and implemented to conform with statutory and regulatory requirements to assure the ongoing SSI and Medicaid eligibility of the disabled person. The SSI and Medicaid rules regarding SNTs are similar though not identical. Technical rules, particularly those protecting incapacitated persons must be adhered to.
If you are serving as trustee of a special needs trust or if you might be undertaking that responsibility, then you can download a FREE copy of the Handbook for Trustees from the Special Needs Alliance website. If you need someone to serve as Trustee of your special needs trust, that is a service we offer.
David L. McGuffey is a member of the Special Needs Alliance.