Special Needs Trusts

Special Needs Planning Expertise

If you have a family member or loved one with a disability or special needs, you likely worry about their future. If you get the planning right, your loved one will be provided for and cared for.  If you get it wrong, your plan can inadvertently cause your loved one to lose government income and medical care benefits. Idaho Law Group can help you design a special needs plan to provide “supplemental needs” for your loved one while ensuring continued government assistance.

What is a Special Needs Trust?

The government offers assistance for those with special needs who cannot provide for themselves (the aged, the blind and those with disabilities which prevent them from working).  This assistance comes in the form of “Supplementary Security Income” (SSI) for food and shelter and “Medicaid” for medical care. While this assistance is essential, it only covers the bare necessities of life. If a person with special needs receives financial support from family, friend or charity, the government may revoke the benefits it has been paying.

When a family member, friend or charity gives assets to a properly drafted Special Needs Trust (also called a Supplemental Needs Trust), the Trust will hold the assets until they are needed to provide for the special needs recipient.  The special needs recipient is the “beneficiary” of the Special Needs Trust. This type of Trust has built in restrictions to preserve the recipient’s eligibility for SSI, Medicaid, and other government benefits.

This Trust maintains the special needs person’s qualifications for government benefits while allowing the Trustee the maximum flexibility to use Trust funds to improve the recipient’s quality of life.  The Trustee can use trust funds to pay for such things as tuition, travel, tools, cultural events, and companion services without disqualifying the beneficiary from government benefits.

What is a Special Needs Trust?

The government offers assistance for those with special needs who cannot provide for themselves.  This assistance comes in the form of “Supplementary Security Income” (SSI) for food and shelter and “Medicaid” for medical care. While this assistance is essential, it only covers the bare necessities of life. If a person with special needs receives financial support from family, friend or charity, the government can revoke these benefits.

 

When a family member, friend or charity gives assets to a properly drafted Special Needs Trust (also called a Supplemental Needs Trust), the Trust will hold the assets until they are needed to provide for the special needs recipient.  The special needs recipient is the “beneficiary” of the Special Needs Trust. This type of Trust has built in restrictions to preserve the recipient’s eligibility for SSI, Medicaid, and other government benefits.

 

This Trust maintains the special needs person’s qualifications for government benefits while allowing the Trustee the maximum flexibility to use Trust funds to improve the recipient’s quality of life.  The Trustee can use trust funds to pay for such things as tuition, travel, tools, cultural events, and companion services.

Who needs a Special Needs Trust?

Special Needs Trusts are most commonly used for people who have severe disabling conditions who are receiving, or seeking to receive, the assistance of SSI and Medicaid benefits.

 

Many disabling conditions are not permanent.  Disabling conditions which will last for longer than 12 months often qualify for government assistance.  The Special Needs restrictions may be terminated once the beneficiary is no longer considered disabled.

Improper Planning May Harm a Beneficiary

SSI payments are not enough to pay for hobbies or travel to see family. There may be medical issues that are not covered by Medicaid.  Many people want to help disabled loved ones in these circumstances.

 

If assets are given to a disabled person or left in a Will for a disabled loved one, that gift may immediately disqualify the recipient from all government assistance (SSI, Medicaid, Section 8 Housing). Even worse, the disabled person may have to repay benefits.

 

A gift without proper planning may cause your loved one to lose his or her.

  • Income
  • Medical Coverage and
  • Housing

Improper Planning May Harm a Beneficiary

SSI benefits are not enough to pay for hobbies or travel to see family. There may also be some medical issues that are not covered by Medicaid. Many people want to help disabled loved ones in these circumstances.

 

If assets are given directly to a disabled person or left in a Will for a disabled loved one, that gift may immediately disqualify the recipient from all government assistance (SSI, Medicaid, Section 8 Housing). 

Giving a gift to a disabled person without proper planning may cause your loved one to lose his or her government benefits such as:

  • Income
  • Medical Coverage
  • Housing

Two Types of Special Needs Trusts

There are two types of special needs trusts – First-party and Third-party Special Needs Trusts. If the disabled person funds the Trust with his or her own money, then a First-party Trust should be used. If another person is putting money into the Trust, then a Third-party Trust is used.

Third-party Special Needs Trusts are commonly used by persons who do pre-planning for a loved one with special needs. Typically, the parents of a child with disabilities or special needs will be the persons who establish a Third-party Special Needs Trust. However, a grandparent, a sibling, or any other person (other than the beneficiary) may establish a Third-party Special Needs Trust.

A Third-party Special Needs Trust has fewer restrictions than a First-party Special Needs Trust. A Third-party Trust can name successor beneficiaries you choose.

Idaho Law Group can help you design a Special Needs Trust that supports your goals while maintaining the maximum amount of flexibility allowed under law.

Third-party Special Needs Trusts are commonly used by persons who do pre-planning for a loved one with special needs.

 

Typically, the parents of a child with disabilities or special needs will be the persons who establish a Third-party Special Needs Trust. However, a grandparent, a sibling, or any other person (other than the beneficiary) may establish a Third-party Special Needs Trust.

 

A Third-party Special Needs Trust has fewer restrictions than a First-party Special Needs Trust. A Third-party Trust can name successor beneficiaries you choose.

 

Idaho Law Group can help you design a Special Needs Trust that supports your goals while maintaining the maximum amount of flexibility allowed under law.

Unlike a Third-party Trust, a First-party Trust contains assets provided by the disabled person. This kind of Trust is commonly used in situations when the person with a disability inherits assets or receives a financial settlement. 

Property in a First-party Special Needs Trust can only be used for the sole benefit of the special needs beneficiary.

Unlike Third-party Special Needs Trusts, when a disabled person with a First-party Trust recovers or dies, any remaining funds must be paid back to the State for reimbursement of medical care expenses.

Case Study #1

  • Jeanne’s daughter, Cassie, has been diagnosed with schizophrenia.

  • In Jeanne’s estate planning, she creates a special needs trust for Cassie and purchases a life insurance policy to fund it.

  • Jeanne asks Cassie’s adult sister, Susan, to be the successor trustee when Jeanne dies. Susan thinks it is a great idea to take care of her sister this way and decides to buy a life insurance policy of her own to provide extra help and names Cassie as the beneficiary.

  • When Jeanne dies, Susan comes to Idaho Law Group to make sure that she is doing things properly.

  • Idaho Law Group explains the dangers of naming Cassie as the beneficiary of the life insurance policy and advises Susan to change the beneficiary of the policy to Jeanne's special needs trust so Cassie does not inadvertently lose her government benefits from directly receiving life insurance proceeds.

Case Study #2

  • Pete suffers from PTSD and is unable to work.

  • Pete receives Supplementary Security Income (SSI) and Medicaid and is the beneficiary of a special needs trust.

  • Pete owns a car that he uses for everyday transportation. A person receiving SSI or Medicaid is allowed to own one vehicle.

  • Pete loves riding motorcycles. He feels it is therapeutic. If the trustee of Pete's special needs trust registers a motorcycle in Pete's name, Pete will lose his SSI and Medicaid eligibility. A motorcycle is considered a "countable resource" and its value would exceed the resource limit.

  • Idaho Law Group advises the trustee to purchase the motorcycle and own it within the Special Needs Trust. Pete can be allowed to use the motorcycle, but because Pete is not the owner, he still qualifies for his benefits.

If you do “special needs” planning wrong, you can inadvertently cause your loved one to lose government income and medical care benefits. 

We provide education and counseling to individuals and families so you can make informed choices with confidence.

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