Special Needs Planning

The need to protect the disabled who have suffered debilitating injuries that radically change their lives and their families’ lives is very important. Those who find themselves in a catastrophic accident and who suffer physically, mentally and financially must be protected as permitted under the law. Special trusts, known as Special Needs Trusts (SNT), can be and should be used as the legal vehicle whereby the disabled and those who are otherwise impaired may continue to receive benefits provided through the State and Federal governments and retain supplemental assistance from funds generated by injury settlements, inheritance and gifts.

“Insurance based” programs such as Social Security Disability Insurance (SSDI) and Medicare benefits provide for the aged, blind and disabled. “Needs based” programs available for the aged, blind or disabled include Supplemental Security Income (SSI) and Medicaid. Government benefits provided through various programs such as SSDI and SSI are designed to pay for the basic needs of disabled individuals who have limited financial resources. Basic needs are defined as food, shelter and medical care. These programs are not designed to provide “quality of life” benefits such as transportation, recreation, entertainment, special therapies, special equipment or items that may provide comfort.

Gifts, inheritance and lawsuit settlements

What happens when a disabled individual receives an unexpected gift or inheritance? What about a person who suffers a catastrophic injury and receives a large settlement? The income and resource summaries set forth below can help answer these questions. Receipt of injury settlements, gifts and inheritances may result in the discontinuation of governmental benefits provided through Medicaid, SSI and other welfare programs until the funds received are spent on the care of the recipient. This unpleasant situation may be avoided by implementation of an appropriate Special Needs Trust. Assets of the disabled person that are contained in the SNT will not be counted as a resource and will allow the government benefits to continue or to be established.

SUMMARY OF SSI and MEDICAID

SSI/Welfare (Federal) Resources/Exempt
$674.00 minimum level of income House/residence
$2,000.00 maximum countable resources one vehicle
$3,000.00 for married couple burial spaces

$1,500.00 for burial expenses
Household goods

Medicaid Resources/Exempt
$2,022.00 monthly income cap House/residence
$2,000.00 maximum countable resources one vehicle
$4,916.55 penalty divisor $10,000.00 burial expenses
$2,739.00 monthly needs allowance $1,500.00 life insurance value
$109,560.00 Community spouse allowance
$3,000.00 Couples maximum resources
$50.00 Personal needs allowance Income producing property Retirement accounts

Requirements of various Special Needs Trusts

Self Settled Trust – 42 U.S.C. 1396p (d) (4) (a) and (c)

These are for the beneficiary who may have received a large award in a personal injury settlement, wins the lottery, sells property or otherwise comes into money unexpectedly.

(d) (4) (a): Requirements:

  1. Irrevocable
  2. Must be established by a parent, grandparent, court order, legal guardian
  3. Must be 65 years of age or younger
  4. Upon the death of the beneficiary, the remaining assets must be first paid to the State government in an amount equal to benefits paid on behalf of the beneficiary and the remainder may be paid to persons selected by the beneficiary.
  5. Funds placed in the trust will not count as a resource.

(d) (4) (c): (Pooled Trust) Requirements:

  1. Irrevocable
  2. Must be established by a beneficiary, parent, grandparent, court order, the beneficiary’s agent, or legal guardian
  3. Must be 65 years of age or younger
  4. Upon the death of the beneficiary, the remaining assets must first be paid to the State government in an amount equal to benefits paid on behalf of the beneficiary and the remainder may be paid to persons selected by the beneficiary.
  5. Funds placed in the trust will not count as a resource.

Third Party Special Needs Trust:

These trusts are created and funded solely with property that does not belong to the beneficiary or the beneficiary’s spouse. Funds will not count as an available resource.

Requirements:

  1. Irrevocable
  2. The beneficiary must not have any control to compel distribution or exercise any powers of ownership
  3. Benefits must be used to supplement NOT supplant support of the beneficiary
  4. Trust may have only one lifetime beneficiary
  5. Beneficiary must be 65 years of age or younger
  6. Trust may be created by the beneficiary
  7. No pay back provisions

Some general rules regarding distributions by Trustees

  1. Distributions supplement and may not supplant benefits of the recipient
  2. Trustee should never distribute cash or items that can be converted to cash to the beneficiary
  3. In-kind support and maintenance disbursements that do not represent food, clothing or shelter are allowed.

© 2017 Kirkland & Associates

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