Helping Your Loved One With A Special Needs Trust
Public benefits, such as AHCCCS/Medicaid, ALTCS and Supplemental Security Income (SSI) can be a lifeline for those suffering from a disability. Unable to work due to a disabling condition, these programs may provide life’s essentials (food and shelter) and/or health care. At some point, a special needs trust, sometimes also called a supplemental needs trust, may be necessary to preserve eligibility for public benefits.
Public benefit programs are often means-tested. Thus, assets owned and income received by the recipient is taken into account to determine eligibility for the programs. The recipient of public benefits may come into a sum of money, usually an inheritance or personal injury settlement, that may not be enough to care for them the rest of their lives but would make them ineligible for the benefits they are receiving.
This is where a special needs trust comes in to play to preserve those public benefits for a disabled person who needs them. The trust is set up to supplement the public benefits and may be used to provide clothing, furniture, tuition, telephone service and internet service among other things to the disabled person.
The Special Needs Alliance aptly states, “The essential purpose of a special needs trust is usually to improve the quality of an individual’s life without disqualifying him or her from eligibility for public benefits.”
Understanding The Benefits Of Special Needs Trusts
There are two types of special needs trust. One is a first-party or self-settled special needs trust that is funded by the disabled person’s own money. The second is a third-party special needs trust that is created when someone wants to leave an inheritance to a disabled loved one on public benefits.
First-Party or Self-Settled Special Needs Trust: A first-party special needs trust, or sometimes called a self-settled special needs trust, is established with the disabled person’s own money. This frequently occurs when a disabled person receives a personal injury settlement, often from an accident that caused the disability. It also occurs when a disabled person receives an inheritance from a well-intentioned benefactor who did not include special needs provisions in the will or trust that gifted the inheritance to the disabled person, or had no will or trust and the disabled person receives the inheritance by operation of law. Because the disabled person is deemed to have the right to outright possession of the inheritance, the value of the inheritance is considered a countable resource in determining initial eligibility for public benefits or maintaining eligibility for public benefits.
Legislation went into effect at the beginning of 2017 that makes the establishment of a first-party special needs trust easier, especially for those with purely physical disabilities. However, a first-party special needs trust must contain certain exacting provisions, including a “payback” requirement stating that the agency providing benefits to the disabled person is to be reimbursed from any amounts remaining in the trust upon the death of the disabled person.
These key requirements, among others, make the use of professionals skilled in these types of trusts. Call me, Christopher D. Graham, at 480-219-5000 for the crucial guidance you need in creating a valid trust that will maintain eligibility for public benefits.
Third-Party Special Needs Trusts: Third-party special needs trusts are used when proper planning is employed to leave an inheritance to a disabled person to supplement public benefits. Because the money or other assets are left to the trust and not directly to the disabled person, public benefits are preserved. Additionally, a third-party special needs trust is not required to include the “payback” provisions of a first-party special needs trust so any money remaining upon the death of the disabled person may be left to a spouse or another family member.
Moreover, the rules governing the use of the trust fund are more generous and flexible with a third-party special needs trust. In the case of special needs trusts, planning is truly very advantageous.
Call To Learn More About Special Needs Trusts
At the Bailey Law Firm, I provide answers and solutions to the complex questions that arise with special needs trusts. Call my office in Chandler at 480-219-5000 to schedule a meeting to discuss your estate planning needs and questions about creating a trust. You may also email me through my website.