Using Special Needs Trusts to Protect SSI and Medicaid Eligibility

 Posted on April 17, 2015 in Estate Planning

If you are caring for a child with a disability, you have no doubt worried about how your child’s needs will be met following your death, particularly if your child receives Medicaid or SSI. These benefits have strict income eligibility guidelines, and a direct receipt of money would result in the loss of benefits until the inheritance was spent down below the income limits. But without your support, your child will have no money to pay for uncovered medical expenses, recreation or even basic living necessities. How can you protect your child’s eligibility for these benefits but at the same time ensure his life will be enjoyable? Ultimately, this can be achieved by leaving his share of your estate to a third-party special needs trust.

Requirements for Third-Party Supplemental Needs Trust

A trust is an agreement between the person who creates and funds the trust (the trustor) and the person who manages the trust (the trustee). The trustee is responsible for managing the trust’s assets, which can include a mix of property such as cash, real estate, or investment accounts, for the benefit of the trust beneficiary. A third-party special needs trust, also called a supplemental needs trust or SNT, is created by someone other than the Medicaid or SSI recipient to hold assets left to the recipient as part of an inheritance.

The purpose of a SNT is to protect the trust beneficiary’s eligibility for Medicaid, SSI and other forms of need-based public assistance, while at the same time allowing the trustee make payment for items and services that will enhance the life of the beneficiary. As the name implies, the assets that comprise the supplemental needs trust are to be used to supplement any other benefits the beneficiary receives, not supplant them.

In order to protect the beneficiary’s eligibility for Medicaid and SSI, the special needs trust must:

• Benefit a disabled person under the age of 65;
• Not give the beneficiary direct control or access to the trust funds; and
• Give the trustee wide discretion to make distributions on the beneficiary’s behalf.

If each of these requirements is met, then none of the assets in the trust will be considered income or resources available to the beneficiary, and he will continue to receive Medicaid and SSI.

Implementing a Third-Party SNT

Unlike a traditional trust, distributions from the SNT may not be made directly to the beneficiary. This is to ensure that his income and/or available resources do not rise above the strict eligibility guidelines for each government program. Instead, distributions from the trust are to be made to a third-party on behalf of the beneficiary.

For example, if the beneficiary enrolls in school, tuition payments are made directly from the trust to the school. If the beneficiary needs medical equipment not covered by Medicaid, payment is made directly to the medical provider. The beneficiary never receives direct payments from the trust, nor can he or she force the trustee to make a distribution.

All distributions are made entirely at the trustee’s discretion. In addition, it is imperative that the beneficiary not have any control of, or access to, the trust’s funds – such as the power to request a distribution from the trustee, or sue the trustee in court to make a distribution. Such powers will cause the trust’s assets to be considered a resource available to the beneficiary, and he or she will lose eligibility for government benefits.

Sugar Grove Special Needs Trust Attorneys

If you have a family member with a disability, a special or supplemental needs trust is a vital part of your estate plan. With more than 40 years’ combined experience, the Sugar Grove special needs trusts attorneys at Law Office of James F. White, P.C. can help you safeguard your loved ones’ financial future. Contact our office today at 630-466-1600, or complete our online form, to schedule an appointment with an estate planning attorney today.