Special Needs Trusts

Why Special Needs Trusts?

A Special Needs Trust is a legal document designed to benefit a beneficiary with a disability.  A Special Needs Trust can form part of a Last Will and Testament, but more often it is a document that stands alone.  Congress mandates that a Special Needs Trust must be irrevocable to comply with applicable laws.

When properly drafted, a Special Needs Trust may enable a person under a physical or mental disability, or an individual with a chronic or acquired illness, to hold, in Trust, an unlimited amount of assets, without those assets being considered countable assets for purposes of qualification for governmental benefits that are based upon need.

Governmental benefits based upon need may include such benefits a Supplemental Security Income (SSI), Medicaid, the expenses of vocational rehabilitation, subsidized housing, and other benefits that are based upon need.

For purposes of a Special Needs Trust, an individual may be deemed impoverished if his or her assets are less than $2,000.00.  The Special Needs Trust provides for supplemental and extra care over and above that which the government may provide, for personas under mental or physical disabilities, chronic or acquired illnesses.

Special Needs Trusts have been used for several years based upon case law.  However, in 1993, Congress created an exception under the amendments to the Omnibus Budget and Reconciliation Act (OBRA-93) specifically authorizing the use of a Special Needs Trust to benefit individuals who otherwise would qualify by virtue of a disability for Social Security Benefits.  In fact, the Social Security Operations Manual also authorizes the use of a Special needs trust to hold non-countable assets.

The Special Needs Trust is it’s own “entity” and exist under a Federal I.D. Number (Employer Identification Number ) issued by the Internal Revenue Service, and is not linked to either the Grantor’s or the Beneficiary’s Social Security Numbers.

When is the time to create a Special Needs Trust?

It is very common for parents to create the Special Needs Trust as a means for holding assets to benefit disable children after the parent’s death.  The Special Needs Trust is an estate planning tool of choice for those parents.  Additionally, the disabled or chronically ill individual may nat some time during his or her lifetime come into funds from third party sources which could include personal injury settlements, bequests from relatives or friends, Social security or other types of insurance back payments.

Leaving money to others can create serious problems.

“Disinheritance” was commonly used before the use of Special Needs Trusts.  Parents would often disinherit a disabled individual to preserve his or her status and eligibility for governmental benefits.  A non-disabled sibling would hold the assets for the benefit of the disabled sibling.  This can have risky consequences as the money becomes subject to judgment or creditors of the non-disabled sibling.

Using a Special Needs Trust assures that the funds are not at risk and go for the purpose intended; the needs of the disabled individual.

What needs are met by the use of this trust?

While the disabled individual’s daily needs of food, clothing, shelter and medical care are ordinarily met by state and federal programs, the Special Needs Trust provides for “supplemental” and “extra care” over and above that which the government provides.

Will pay-backs be required?

Pay backs to Medicaid are currently required only under specific circumstances.  A Special Needs trust that is funded by parents or other third party sources will not be required to pay back Medicaid.  The only assets within the trust that are subject to the repayment obligation are those assets which belonged to the disabled individual him or herself which were subsequently transferred into the trust.   An example of assets which would belong to the disabled individual in the first place could be such assets as earnings from a job, Social Security back payments, personal injury recoveries, and the like.  The disabled individual’s estate then might be liable for an amount equal to the Medicaid used during the life time of the disabled or chronically ill individual.