Special Needs Trusts (SNTs) are a great resource for disabled people, allowing them to retain their assets without having it affect their Supplemental Security Income (SSI) or Medicaid. But should you have a special needs trust?
SNTs provide a way for disabled people to retain their assets while still being able to obtain support from the Social Security Administration (SSA). But it does come with a few drawbacks; for starters, the costs of maintaining an SNT may be too much if you don’t have the money for it. Plus, the nature of the trust determines how independently the beneficiary can use those funds. Lastly, the termination of the trust can trigger a Medicaid payback.
Read below for more information about special needs trusts and whether you should have one.
Special Needs Trust Overview
A special needs trust is an agreement between a trustee and a disabled or chronically ill individual that permits the beneficiary to earn income without jeopardizing their eligibility for government disability benefits.
A grantor creates a trust, and the trustee oversees the distribution of the trust’s assets. The individual who is designated to receive benefits from a trust after it has been established is known as a beneficiary. The trust aims to supplement the beneficiary’s existing government benefits rather than serve as a replacement for them.
If you want to support a loved one with special needs but are concerned about jeopardizing their access to government assistance programs because their income or assets have grown, a special needs trust is a good option.
How Can Special Needs Trusts Protect Social Security Payments?
It’s possible that individuals who aren’t currently disabled could become so in the future due to a chronic ailment that will only worsen. Thus, the individual may eventually need the help of programs like Medicaid and Supplemental Security Income. Making a special needs trust, in this case, requires some guessing.
You should establish a special needs trust if you believe it is more likely than not that a family member will eventually require long-term government help. When the trust is no longer necessary, the trustee can be given the authority to dissolve the trust.
Medicare and Social Security Disability Insurance (SSDI) are two government programs that do not consider an individual’s financial resources when determining eligibility, so if a loved one is receiving any of these benefits, a special needs trust may not be necessary. Though it may seem premature, you should consider whether or not your loved one could qualify and benefit from SSI or Medicaid.
If your loved one’s SSDI payment is low, Supplemental Security Income may be a good option to boost their income. In addition, the Medicare program may not cover some services, such as long-term care in a nursing home, making it important for some people to apply for Medicaid.
Should I Have a Special Needs Trust?
As mentioned before, the primary goal of a special needs trust is to provide a beneficiary with special medical needs with extra income without impacting the beneficiary’s eligibility for government benefits such as Supplemental Security Income, Medicaid, and other similar programs.
The trust can be established by the grantor to provide financial support for a member of the family or another loved one who is disabled, allowing the trust money to make the beneficiary’s life less difficult.
If the beneficiary uses these funds in the appropriate manner, then it will not have any impact on whether or how much SSI they are eligible to get, as well as whether or not they are eligible for other programs.
The money in a special needs trust can be spent on a variety of non-essentials, such as but not limited to the following:
- Tuition
- Education and training
- Computers
- Vehicle
- Vacations and traveling
- Home accessories
- Exercise gear and sporting items
- Phone, internet, and other entertainment services like streaming services
The money in a special needs trust can be spent on anything aside from necessities like food, shelter, transportation, medical care, education, and the like.
If a beneficiary pays for any of these necessities from a trust, the Social Security Administration will consider the payment to be “in-kind support and maintenance” (ISM), which may reduce the beneficiary’s SSI benefit and possibly affect their eligibility for other programs.
In addition to their primary function, SNTs have various other advantages. The money contributed to an SNT is exempt from taxes. Furthermore, given that the assets of the trust are legally considered to be owned by the trust itself and not by the settlor or the beneficiary, those funds are not accessible to creditors and cannot be attached for the purpose of paying debt.
The money can be utilized for no other purpose than to take care of the individual who has a disability.
Disadvantages of a Special Needs Trust
Supplemental income from special needs trusts does not affect a beneficiary’s eligibility for government assistance programs like Medicaid or Supplemental Security Income. However, there are a few disadvantages associated with having these trusts.
Costs
There is a cost associated with creating and maintaining a trust. The trust needs to be managed, and the costs of doing so each year can be high.
There may be a required minimum contribution in order to initiate the trust; however, this will differ depending on the manager of the fund. Depending on their situation, the grantor may have a hard time coming up with the money necessary to create the trust.
Nature of Trust
The nature of the trust itself may also raise concerns among the beneficiaries. The trust, not the recipient, is the legal owner of the money.
The recipient is not free to withdraw money and spend it however they like. Instead, the beneficiary must make a formal request to the trustee for the distribution of trust assets, who will then determine whether or not the request is reasonable and consistent with the trust’s goals.
Payback
SNTs can potentially result in Medicaid reimbursement. When the trust comes to an end, either because the beneficiary passes away or because it is terminated legally, Medicaid may make a claim for reimbursement for the funds that were used to pay for the beneficiary’s medical treatment.
Conclusion
Whether or not an SNT is appropriate for you and/or your loved one depends on your individual situation, requirements, and preferences. Discuss your condition and alternatives with a disability advocate or a knowledgeable disability attorney to determine if an SNT is right for you.
