If you have a loved one with special needs, it’s essential to understand the new rules for special needs trust establishment. Under the new regulations, there are more options than ever when setting up special needs trusts for your loved one.
You can choose the trustee, decide how much money goes into the trust each year, and set up specific provisions for what should happen if your loved one outlives you. Adults with disabilities may also set up their own special needs trusts.
It’s crucial to fully understand your options so you can make the best decisions for your loved one’s future.
Government Benefits: Supplemental Security Income SSI & Medicaid
Many disabled individuals wonder if income from a trust will affect SSDI benefits. The answer is no. Programs such as Supplemental Security Income (SSI) and Medicaid) consider their beneficiaries’ financial eligibility.
However, special needs trusts are created specifically to help special needs persons without affecting their crucial government benefits.
What Is a Special Needs Trust?
There are three types of special needs trusts in North Carolina: self-settled, third-party, and pooled. Each type of special needs trust helps disabled individuals to qualify for government programs that offer means-tested benefits.
You may establish an SNT with an experienced estate planning attorney who can help you craft a trust document uniquely for your disabled loved one. You’ll need to name a trustee whose fiduciary duty is to administer the trust according to your terms.
Often, attorneys create SNTs as an irrevocable trust, which means it is challenging to change trust rules once you’ve funded the trust.
How Does a First-Party SNT (Special Needs Trust) Work?
A disabled person, the beneficiary, may set up a self-settled trust or first-party SNT with their own assets. Often the beneficiary’s assets come from a personal injury award, lawsuit settlement, or an inheritance.
A disabled person may set up first-party special needs trusts with assets from their own bank account and still protect their SSI and Medicaid benefits.
First-party SNTs allow a beneficiary’s eligibility to continue despite funds exceeding eligibility limits. However, medical assistance paid by Medicaid may not cover everything a beneficiary needs.
When the beneficiary needs help with medical expenses not covered by Medicaid, the trust pays for their extra out-of-pocket medical expenses. First-party special needs trusts cover additional medical costs that Federal law does not cover under Medicaid.
For someone who received a personal injury settlement, a first-party trust just makes sense to stay eligible for government benefits. Public benefits such as Social Security Administration SSI benefits and Medicaid take care of the bare essentials of care. Still, the special needs trust preserves the assets belonging to the special needs person.
How Does a Third-Party SNT (Special Needs Trust) Work?
Someone who cares about the person with special needs sets up a third-party trust for the sole benefit of their loved one. The person who sets up the trust can be a family member, such as a parent, grandparent, legal guardian, or even a non-profit organization.
However, with a third-party trust, someone other than the beneficiary must fund the trust. Beneficiaries legally cannot contribute to a third-party special needs trust. However, they may consider setting up a first-person special needs trust with monies from a settlement or other savings.
Usually, third-party SNT funding comes from a loved one, such as grandparents or parents. However, non-family members may also set up third-party special needs trusts. The assets for the trust can come from an inheritance, gifts, a life insurance policy, etc.
Pooled SNT: Does My Family Member Get a Separate Account?
Pooled trusts are third-party trusts that combine the funds of multiple beneficiaries into one large account. Often, non-profit organizations will set up these third-party trusts for various persons with disabilities.
This trust keeps the monies in separate accounts. Each trust beneficiary has their own account within the pooled trust so that the special needs trust can care for each individual beneficiary.
Each beneficiary’s account may pay benefits when Medicaid or SSI does not cover a needed expense. These trusts may also cover other types of expenses.
New Rules for Special Needs Trust
When you create a special needs trust, you essentially set up a financial safety net for your loved one. And, there is more flexibility now than ever in how you do this.
For example, as of 2016, a person with disabilities may establish their own special needs trust (SNT). Previously, this type of SNT only a parent, grandparent, guardian, or court could establish a special needs trust.
This new rule for special needs trust establishment means that an adult who becomes disabled can save for their own future, building trust funds up for their lifetime!
Beneficiaries may use Special Needs Trust assets for many different items (with trustee discretion), including:
- Personal Care attendants
- Education
- Home and vehicle maintenance
- Vacations
- Computers or electronic equipment
- Educational expenses
- Ongoing monthly bills such as phone, cable, and internet services. (1)
As of 2014, a person with disabilities can open an ABLE account also. These accounts are not counted as income or assets for means-tested government benefits either. But ABLE accounts are not as flexible as special needs trusts.
With an ABLE account, you:
- Must become disabled before age 26
- May only add up to $100,000 before assets count to disqualify for SSI
- May only add up to $14,000 each year
We Can Help
If you’re considering setting up a special needs trust for a loved one with disabilities, talk with us at Vail Gardner Law Firm. We have experience with special needs trusts and can help you decide the best way to create a financial safety net for your loved one.
Or, if you need help setting up a trust for yourself, our experienced team can help you draw up and fund a first-party special needs trust for your lifetime care.
We understand that this decision comes with a lot of emotion attached. You want to do what’s best for your loved one, and we’re here to help make that happen in the most efficient way possible.