Legal Law

Protecting Government Benefits With Special Needs Trusts

Special Needs Trust (SNT) It is a trust designed to supplement the needs of a person whose necessary medical or living expenses are paid through programs such as Medicaid or SSI. Because these programs undergo “resource tests,” based in part on income, an SNT allows the beneficiary to continue receiving assistance despite an increase in income or assets. Generally, surplus funds are placed with the SNT, which then pays the beneficiary’s expenses. supplementary fact Needs such as recreation and consumer goods not covered by government benefits. Here are some examples:

Divorce and the disabled child. Disabled children who receive SSI run the risk of a reduction or termination of benefits when a parent must pay child support. Receiving child support can reduce SSI benefits by one third for children under 18 and dollar for dollar for children over 18. Instead of funds being rolled over directly, child support can be placed in an SNT that diverts the child’s income. Because SSI covers expenses for food, lodging, and utilities, the SNT can pay other Life-enhancing benefits, such as vacations, electronics, or specialty vehicles, all while maintaining the child’s right to government benefits.

Personal injury settlements. Personal injury settlements are designed in part to meet the individual’s future medical needs and expenses. A part of the settlement can also be awarded as “punishment” for the defendant’s misconduct. However, disabled individuals receiving SSI and Medicaid run the risk of being disqualified upon receiving a lump sum settlement. In addition, Medicaid may be entitled to recover the portion of the settlement that is for medical care. To avoid disqualification of these important government benefits, an SNT can be established to accept the net proceeds of the settlement. Money placed in the SNT can be used to purchase complementary goods and services that enhance, rather than replace, government benefits. As in the previous example, SNT funds can be used to plan vacations for disabled people, purchase specially equipped vehicles, and provide other amenities, including consumer goods or beauty services.

Third-party SNT. A third-party special needs trust involves the same concepts as described above. However, the SNT is financed with the assets of a third for the benefit of the disabled person. For example, a grandparent, friend, or other person who is not legally responsible for the beneficiary may establish an SNT to pay for the supplemental needs of another. In addition to helping the disabled person, a grantor who funds a third-party SNT for the benefit of their disabled child may partially avoid the five-year retroactive period for their own Medicaid qualification.

Worth considering. Special needs trusts can be a powerful tool in planning the continuing care of a person with a disability or in helping the grantor achieve their own Medicaid eligibility. You may want to explore whether an SNT is right for you or someone you love.

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