Special Needs Trust & Special Needs Planning
Unfortunately, there are individuals who suffer from learning disabilities, physical disabilities, and/or behavioral difficulties.
Special Needs Planning involves planning for individuals with those “special needs”, and it includes assisting these individuals with preserving existing or applying for additional government benefits. One of the planning tools involves setting up a Special Needs Trust.
The typical government benefits that are protected through a Special Needs Trust are Medicaid or Social Security Supplemental Income (SSI).
The purpose of a Special Needs Trust would be to enable the individual to keep his/her money, or receive money,such as from a parent or friend, without losing his or her existing government benefits, or to qualify for them in the first place.
Let’s look at 3 scenarios where a Special Needs Trust may be helpful to protect a disabled recipient of (or applicant for) government benefits: (i) a disabled beneficiary has inherited money from a deceased relative, (ii) a disabled beneficiary received money from a personal injury settlement, and (iii) a parent, grandparent or friend wants to set aside a certain amount of money for the disabled individual, so that he or she can enjoy certain luxuries (say, a computer or a vacation) that are not provided for by the government, and which money would otherwise disqualify the individual from receiving Medicaid or SSI benefits. In the first two examples, the disabled individual would be preserving his or her own funds; therefore, the disabled individual would need a “First Party” Special Needs Trust, which would be funded with his or her own funds. On the other hand, in the third example, the parent, grandparent or friend would establish and fund a “Third Party” Special Needs Trust with their personal funds, for the benefit of the disabled beneficiary.
The rules for setting up and administering an individual “First Party” Special Needs Trust are significantly more stringent and restrictive. This is so because the recipient of/applicant for government benefits would be trying to receive or preserve government benefits even though he or she has more money than the allowable amount. For example, in order to establish a “First Party” Special Needs Trust, the beneficiary must be:
- Formally recognized as disabled (such as by Social Security; otherwise by New York State);
- The Beneficiary must be under the age of 65 when the Special Needs Trust is created; and
- The Special Needs Trust must contain a provision requiring the Trustee to repay Medicaid (for the services provided to the beneficiary), when the Special Needs Trust is terminated.
The above-referenced third requirement is a significant distinction to a “Third Party” Special Needs Trust, because a “Third Party” Special Needs Trust Is not required to have such a Medicaid “payback” provision.
It used to be the case that a First Party Special Needs Trust could not be established by the beneficiary; instead, the Trust had to be established by his or her parent, grandparent, guardian or a Court (depending on the circumstances). However, since the enactment of the Special Needs Fairness Act, a beneficiary can now establish his or her own First Party Special Needs Trust (assuming the beneficiary has the mental capacity to do so).
There are additional considerations and limitations that Abraham Mazloumi & Associates can discuss with you to make sure you select the appropriate Special Needs Trust. For example, if the disabled beneficiary is over the age of 65 and has excess income or excess resources, a Pooled Trust may be a viable (if not the only) option.
A “pooled trust” is an irrevocable supplemental needs trust that is established and managed by a not-for-profit organization, and which allows people with disabilities and elderly individuals to spend down excess funds in order to become financially eligible for government benefits. The Social Security Administration’s definition of disability in this context can be found at Social Security Law Section 1614(a)(3) [42 USC 1382c(a)(3)]. This type of Trust is called a pooled trust, because each beneficiary has his own sub-trust account, while the funds are “pooled” for investment and management purposes. However, if the disabled beneficiary is over 65 years old, a transfer of his or her assets to a Pooled Trust would trigger a transfer penalty, which could render the beneficiary ineligible for government benefits for a certain period of time.
Our experience at Abraham Mazloumi & Associates enables us to provide our clients with personalized legal services that can support your Special Needs Planning goals.
