When someone has a disability that prevents them from working, they will need many levels of support. The government can provide this assistance on a basic level through healthcare, housing, and disability benefits. However, most people with disabilities require additional help to obtain necessities like transportation and caretakers.
Fortunately, state and federal law allows a special needs trust attorney to help with these needs without disqualifying the disabled person from government assistance programs. You can begin this process by setting up a special needs trust where the resources are owned by the trust and administered by a trustee for the person with the disability.
Someone who is too disabled to work will face significant financial challenges. Contact the trust attorneys at Berkley Oliver to discuss whether a special needs trust can provide for your loved one’s long-term needs.
Qualifications for a Special Needs Trust
Medicaid and Supplemental Security Income (SSI) only provide benefits to low-income individuals. The “means test” for these programs requires applicants to list their incomes, assets, and expenses to determine whether they meet the financial eligibility requirements. If someone’s income or assets are valued too highly, that person will not receive Medicaid or SSI benefits.
Special needs trusts are established in accordance with Medicaid laws. These laws describe the types of trusts that allow beneficiaries to exclude the trust assets from consideration when determining eligibility for Medicaid. The Social Security Administration (SSA) uses similar rules to determine the cases in which a person can exclude trust assets when applying for SSI.
A special needs trust can be established for someone who needs Medicaid or SSI. Because the assets in the special needs trust are excluded from consideration, you can receive the benefit of the trust assets without counting those assets when applying for these programs.
To qualify for a special needs trust, the person must meet the SSA’s definition of disabled. The SSA has two definitions for disabled depending on the applicant’s age. Someone is disabled if they have a physical or mental impairment expected to last at least one year or cause their death. The disability must:
- Seriously limit their activities if the applicant is a child
- Prevent them from working or training for work if the applicant is an adult
When someone meets these qualifications, a special needs trust lawyer can help create and fund a trust that will not interfere with their eligibility for Medicaid and SSI.
Types of Special Needs Trusts
You cannot simply characterize a trust as special needs and expect it to meet the legal requirements. Instead, a special needs trust must meet specific requirements set out in federal law.
The Medicaid laws and Social Security regulations authorize two types of special needs trusts:
First-Party or Self-Funded Trusts
In a first-party trust, the beneficiary’s assets fund the trust. For example, suppose your child was disabled in a car accident, and they received a personal injury settlement from the other driver’s insurer. You can create a first-party special needs trust by putting that money into a trust that names your child as a beneficiary.
A first-party trust is subject to several other requirements, including that:
- The trust assets must come entirely from the beneficiary
- The beneficiary must be under 65 years old when the trust is created and funded
- The trust must be irrevocable
- The remainder of the trust must repay Medicaid after the beneficiary dies
The special needs trust lawyer must write these terms into the trust for it to meet the federal requirements.
Third-Party or Supplemental Needs Trusts
In a third-party trust, someone else’s assets fund the trust. Thus, a disabled person’s parents could decide to provide for their child’s future by putting an investment portfolio into a third-party special needs trust.
Since the assets of the third-party trust never legally belonged to the beneficiary, different rules apply:
- The trust assets must come entirely from someone other than the beneficiary
- A third-party trust has no age requirements
- The trust can be revocable or irrevocable
- The person funding the trust can decide where the remainder of the trust goes after the beneficiary dies
Third-party trusts are more flexible regarding how they can be funded, formed, and administered. However, it is important to note that you cannot combine the beneficiary’s assets with any other person’s assets in the trust.
How Special Needs Trusts Work
Special needs trusts involve three parties:
- A grantor funds the trust and establishes the rules for how the trust proceeds are spent
- A trustee follows the trust’s rules and distributes trust proceeds
- A beneficiary receives the trust proceeds
Under federal rules, the trustee cannot distribute trust proceeds for anything that duplicates government benefits. So if the disabled person receives government housing assistance, Medicaid, and food benefits, the trust proceeds cannot be used for any of those purposes.
Some examples of uses for trust proceeds from a special needs trust include:
- Caretakers
- Out-of-pocket medical expenses
- Travel
- Education
- Recreation
- Occupational therapy
- Transportation
The trustee must maintain records that describe how the trust proceeds are spent so that Medicaid can audit them.
Contact a Special Needs Trust Attorney
A special needs trust can help you ensure your loved one has the resources they need to live safely and comfortably. Contact Berkley Oliver for a free consultation in Shelbyville, KY, to discuss whether a special needs trust can help you provide for a disabled relative.