Special needs trusts are helpful estate planning tools that allow family members to leave behind assets to loved ones with special needs without risking the beneficiary’s ability to receive Supplemental Security Income and Medicaid benefits. Without a special needs trust, any extra income that they receive such as an inheritance may inadvertently disqualify them from receiving public benefits or cause the inheritance to be seized to pay for those benefits. With a special needs trust, the beneficiary gets the best of both worlds, with the trust funds being used to pay for a wide range of necessities like clothing, education and medical bills.
However many special needs trusts may inadvertently, either due to poor wording or mismanagement, cause themselves to not be considered by the government to be special needs trusts. When this happens, the intent of the trust is frustrated and the assets of the trust may disqualify the beneficiary from public benefits under the United States government means test.
The primary issue that often arises with a special needs trust is that the trust is not recognized as a special needs trust and is instead labeled as a support trust. A support trust is similar to a special needs trust in that it gives support to the special needs beneficiary. However, when determining eligibility under the means tests, public agencies will consider the assets of a support trust to be attributable to the special needs beneficiary. This means that the support trust may disqualify the beneficiary from qualifying for the benefits they need.
There are many steps that can be taken to avoid the unfavorable outcome of disqualification from public benefits.
- Special needs trusts should always state plainly that it is designed to supplement, not replace or supplant, any means-tested benefits that the beneficiary would otherwise be eligible.
- The trustee should never provide a distribution to the beneficiary if another governmental program would cover it or the distribution would affect eligibility.
- The trust documents should make it clear that the trustee is not obligated to provide for the beneficiary’s basic support and maintenance
- The trust should make reference to permissible expenditures that the trust is designed to support
- The trust should have explicit language detailing where the remainder of the trust should go to after the death of the beneficiary.
Special needs trusts are very complex and their requirements are dependent on both state and federal law. Therefore it is imperative that a person seeking to establish a special needs trust consult with an attorney experienced with both federal law and the state law where the special needs trust will be established.
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