A Special Needs Trust can greatly enhance the quality of life of a person with disabilities. Assets placed in a Special Needs Trusts are used to “supplement, but not supplant” the public assistance benefits available to the disabled person. There are two primary circumstances that usually trigger establishing a special needs trust: 1) as an estate planning tool by a third party for a disabled child or heir, and/or 2) for lump sums of money received by a disabled person from a personal injury lawsuit, inheritance, or other source.
Disabled individuals are in a quandary because if they own more assets than allowed they cannot qualify for government health insurance, and yet, because of their disability, likely cannot afford or obtain private health insurance. One of the biggest benefits of the special needs trust is that it provides a means for the disabled person to receive a lower cost alternative to receive medical care, even where the trust has a payback provision A Special Needs Trust can enhance a disabled person’s life by providing a means to purchase “luxuries” and other goods and services not contemplated by government benefits. These “luxuries,” goods, and services might include vacations, computers, supplemental health insurance, experimental medical treatment, or educational and vocational training. The Special Needs Trust can also be used to help the disabled person live independently in the community through subsidizing rent, or help with purchasing a home.
Special needs trusts can play an important role for families striving to meet current and future financial and medical needs of a disabled loved one, and are quickly becoming a very useful estate planning tool to “mitigate the inadequacies of government benefit programs for people with disabilities.” There are a variety of special needs trusts depending on whose assets the trust will contain, the availability of an appropriate trustee and whether there are other heirs to consider.
(d)(4)(A) Self-Settled Trust (42 U.S.C. 1396p(d)(4)(A))
A (d)(4)(A) trust contains the assets of a disabled person and are used for their benefit. The d(4)(A) can be established by that disabled person or by disabled person’s parent, grandparent, or legal guardian, or by a court. The trust must be established before the disabled person’s 65th birthday and once established, will continue in effect; however, no additions to the corpus of the trust, other than investment income, may be made after age 65. The caveat to the self-settled trust is that the State is named in the trust as a residual beneficiary to any amounts remaining in the trust up to the amount of actual Medicaid benefits provided to the disabled person. Since it is possible that the trust could still contain some residual after the State has been reimbursed for Medicaid benefits, additional residual beneficiaries should be named.
(d)(4)(C) Pooled Trust (42 U.S.C. 1396p(d)(4)(C))
The (d)(4)(C) trust is referred to as a pooled trust. Similar to the (d)(4)(A) trust, the pooled trust contains the assets of the individual. But this trust differs from the (d)(4)(A) in that the trust itself is “established and managed by a non-profit” agency and that trust contains separate sub-accounts for each disabled beneficiary. Because the trust is already established, the diabled person or their representative can simply join the trust by agreement and providing their funds for their sub-account. Upon the disabled person’s death, the State is entitled to any remaining amounts in the beneficiary’s account up to the amount of Medicaid benefits paid on behalf of the beneficiary. Unless otherwise agreed to in the pooled trust agreement, the remaining funds are absorbed by the pooled trust. The attorneys at Allen Law, P.A. can help determine if this is the right type of special needs trust for your situation.
Third Party Trust
A third party trust contains the assets of a person other than the disabled beneficiary of the trust. Unlike the self-settled and pooled trust, the third party trust is not a trust specifically authorized by Federal statute. These types of trusts, however, are recognized by Social Security as not being an available resource when the individual has no legal authority over the trust to revoke or direct use of the trust assets. Whether an individual has such legal authority is interpreted according to the terms of the trust and/or the State law governing the trust. Thus, it is important that 1) the trust is discretionary, 2) any distributions made from the trust should supplement and not supplant SSI and other government benefits, 3) the beneficiary cannot compel trust distribution, and 4) the trust does not provide for mandatory distributions to the beneficiary.
The third party trust is not subject to the State payback provisions required in the self-settled and pooled trusts. As such, the grantor of the trust is free to name residual beneficiaries of the trust who may take what remains in the trust upon the death of the disabled beneficiary.