How can you help a disabled loved one receive their inheritance and still meet the eligibility requirements for government benefits? A special needs trust (SNT) allows you to set aside assets for your loved one, so they can continue to receive public benefits such as Medicaid or Social Security Insurance (SSI).

Let’s take a closer look at how special needs trusts work and how they can help your loved one receive the financial assistance they need.

Special Needs Trust SSI Benefits

A special needs trust can help someone with disabilities qualify for a Supplemental Security Income (SSI) benefit. This is because the disabled individual does not own the trust. The assets in the trust are not considered income for eligibility purposes.

A disabled person receiving SSI will generally not lose benefits if they become a trust beneficiary unless that trust distributes income to them higher than their monthly income eligibility limits. Your disabled beneficiary can use the discretionary trust assets for their eligible needs and wants.

Government programs may not cover everything a beneficiary needs. For example, medical assistance from Medicaid may not cover dental implants. Food programs such as SNAP only pay out so much each month.

The trust pays for extra out-of-pocket expenses when your beneficiary needs help with expenses not covered by government programs.

How Supplemental Security Income (SSI) Benefits Work

Supplemental Security Income SSI payments vary depending on the disabled person’s needs and living arrangements. However, SSI does not depend on prior work or a family member’s prior work, like Social Security Disability Benefits.

An SSI recipient qualifies based on many factors, including:

• Household operating expenses
• Countable income and the individual’s spouse income
• Whether the state pays into the Federal SSI program
• Assets (less than $2000) and other income sources
• Wages, pensions, and other Social Security Benefits

An individual’s income affects whether a person receives benefits and how much. If someone else pays some for food or shelter or disabled individuals receive rent-free shelter, those benefits can be considered as income, leaving them ineligible for SSI. Or they may qualify for fewer benefits. (1)

An eligible individual for SSI payment receives unearned income each month, money paid directly into their pocket for their needs, and may also qualify for the following:

• Supplemental Nutrition Assistance Program (SNAP): helps with food expenses and depends on assets and income.
• Social Security Disability Income (SSDI): supplemental income program dependent on your work history or spouse’s work history. Federal law establishes this program under Social Security Administration.
• Medicaid Benefits: provides for some medical care as needed. Medicaid eligibility income eligibility relates to the disabled individual’s liquid resources, such as income and assets. Medical services may include nursing care or at-home care, depending on the state.

What Are Special Needs Trust Funds?

There are three types of special needs trusts in North Carolina: self-settled, third-party, and pooled. Each type of trust established for disabled individuals helps them qualify for government programs that offer means-tested benefits, such as Medicaid or Social Security Disability Insurance.

You can create an SNT by working with an experienced estate planning attorney to draft a trust document that lets your disabled loved one qualify for means-tested government benefits.

You’ll need to identify a trustee, too. This person is responsible for managing the trust per your wishes. At the beneficiary’s death, special needs trust provisions allow assets remaining to pay final expenses and taxes and satisfy liens before the trustee distributes funds to the remaining beneficiaries.

When a 3rd party creates a trust, there is no need to pay back Medicaid for services rendered as with a 1st party special needs trust.

SNTs are generally a type of irrevocable trust. So, it is difficult to change the trust rules after funding it. For this reason, it’s best to work with a knowledgeable estate planning attorney to set your special needs trust up correctly!

How Does a First-Party SNT (Special Needs Trust) Work?

Disabled people may set up self-settled trusts or first-party SNTs with their own assets. Assets may come from a personal injury award, court order, nonprofit association, Veterans benefits, or an inheritance. A disabled person may even set up a first-party special needs trust with assets from their own bank account.

For someone who receives a personal injury settlement or an inheritance, a first-party trust just makes sense to stay eligible for government benefits. Public benefits take care of the bare essentials of care, while the trust supplements the government program income.

How Does a Third-Party SNT (Special Needs Trust) Work?

Someone who cares about a person with special needs can set 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.

Non-family members may also set up third-party special needs trusts. The trust assets can come from an inheritance, gifts, a life insurance policy, etc.

However, when the beneficiary of a first-party trust passes away, the trust must pay back the Medicaid benefits received during their lifetime by reimbursing the state’s Medicaid payback program.

Pooled SNT: Does My Family Member Get a Separate Account?

A pooled trust is a type of third-party trust that combines the funds of multiple beneficiaries into one account.

Pooled trusts keep assets 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 account may pay benefits when Medicaid or SSI does not cover a needed expense. These trusts may also cover other types of costs.

Pooled trusts are commonly created by non-profit organizations for people with disabilities to help them with SSI eligibility or other program eligibility.

Social Security Act Trust Rules

You can now create a special needs trust with more flexibility than ever before, providing your loved one with financial stability.

Before 2016, a special needs trust (SNT) could only be established by a person’s parent, grandparent, guardian, or a court. However, as of 2016, anyone with disabilities may establish their own SNT.

What Can a Special Needs Trust Provide?

Beneficiaries may use Special Needs Trust assets to pay for many different things, including the following:

• Personal Care attendants
• Vacations
• Computers or electronic equipment
• Education
• Home and vehicle maintenance
• Educational expenses
• Ongoing monthly bills such as phone, cable, and internet services. (1)

A special needs trust generally helps a disabled person to live a fuller life with the necessities of life covered, along with a few extras.

“Standby” Supplemental Special Needs Trust

You may want to consider setting up a “standby” special needs trust as part of your estate plan.

A “standby” SNT only comes into existence if one of your beneficiaries is disabled at the time of your death (or becomes disabled at a later date before the trustee fully distributes the trust funds).

Suppose a disabled beneficiary receives public assistance at the time of your death. In that case, an inheritance in an SNT will not disqualify them from the public assistance benefits they are receiving.

Instead, they may use the trust funds to supplement the benefits they are receiving from the government and enhance their life.

We Can Help

At Vail Gardner Law, we can help you create and transfer assets into a special needs trust to supplement a child’s government benefits. Whether you want to help with educational expenses, monthly bills, personal care, or vacations, your gift of a trust can make all the difference in a disabled person’s life.

Contact us today for more information on special needs trusts and to set up a consultation to learn how to care for your loved ones with disabilities.