Have you been told that you cannot leave money to a disabled son, daughter, or grandchild? If they receive certain Government benefits, it’s true. Fortunately, there is a solution to this problem. Read on to understand how a Special Needs Trust is in your loved one’s best interest. Learn how to plan carefully so you’re not jeopardizing your loved one’s ability to receive Supplemental Security Income (SSI) and Medicaid benefits.
What Government Benefits Have Asset Restrictions?
Benefits that have asset restrictions include Supplemental Security Income (SSI), Medicaid, and subsidized housing. Unfortunately, if the individual has more than the maximum amount, his or her benefits will be interrupted. If you want to leave money upon your death or a gift during your lifetime to someone with a physical or mental disability, or a person who is chronically ill, you must know your legal rights and plan carefully.
How have I been able to protect my clients? By helping them set up a Special Needs Trust as part of their estate plan.
What is a Special Needs Trust?
You can leave money to your loved one without interfering with the public benefits by setting up a Special Needs Trust (also referred to as a Supplemental Needs Trust). This type of trust enables a person with a disability or chronic illness to have an unlimited amount of assets held for his or her benefit.
That being said, instead of leaving property directly to your loved one, you leave it to this trust. The assets held in the trust as not considered “countable” assets in determining whether the individual qualifies for the benefits because the individual does not own them, rather the trust does. The trust, in turn, provides for extra items or care over and above what the government provides.
How Can the Trust Be Used?
The Special Needs Trust can pay for many of the items or services your loved one may want or need in the future. For example, Medicaid won’t pay for certain medical treatment, so the trust can step in and pay for it. If Medicaid will only pay for a basic piece of medical equipment, the trust can provide whatever additional funds are necessary to pay for a nicer model. The trust can pay for alternative treatments, vitamins and supplements, massages, and even grooming supplies.
The Trust can also pay for those extras that may not be medically necessary, but which would definitely increase the disabled person’s quality of life, such as summer camp, airline tickets for travel (including a companion, if necessary), electronic games, computer equipment, nicer furniture or even a larger television.
What Assets Can Be Used to “Fund” A Special Needs Trust?
Almost any type of asset can be used to “fund” a special needs trust, including life insurance proceeds, other inheritances or lifetime gifts. Once the trust is established, other family members or friends can add to the trust through their own estate plans.
Who Manages the Trust?
The trust funds are managed, administered and distributed by the trustee. The trustee should be someone who gets along well with the disabled person and has his best interests at heart as he is the one who will decide if and when any money is distributed. The trustee should also be someone who is comfortable managing money and has a track record of being responsible with their own money.
What is a Pooled Trust?
If you do not have a good candidate to serve as trustee, or if you intend to leave only a modest amount of money to the trust, consider using a “pooled trust.” A pooled trust is a type of special needs trust that is run by a non-profit organization which pools and invests funds from many families. Under the pooled trust structure, each disabled person still has a separate account for those funds added by his family which are used only for his benefit, but all of the funds are invested and managed as a whole.
Setting Aside Money to Trusted Relatives Can Backfire.
It may seem smart to leave money to a trusted relative for your disabled loved one. Unfortunately, even when all the parties have the best of intentions, things can and do go wrong. For example, if the “holder” of the money dies, those funds will automatically be distributed to his or her beneficiaries. They may not want to use it for the disabled person.
Additionally, once the “holder” receives the money, it is legally theirs. No matter what the agreement, he or she can’t be “forced” to use it for the disabled person. They could also be involved in litigation, bankruptcy, or divorce, and none of those legal proceedings would differentiate between the money he is “holding” for the benefit of the disabled person and his own assets.
In short, the use of a Special Needs Trust would solve these problems while ensuring that the funds are used solely to enrich the life of the disabled person.
If you’d like to learn more or set up a Special Needs Trust as part of your estate plan, let’s talk. We can meet at my office, located in Elm Grove, Wisconsin, or I am happy to make a house visit. You can reach me by clicking below or contacting me at 414-430-1722.
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