Medicaid Can Continue With a Special Needs Trust
Having described in last week’s column the limitations of trusts when dealing with Medicaid for older Americans facing nursing home expense, it seemed only fair to present the opposite position regarding younger Medicaid and SSI recipients. Special needs trusts, also referred to as supplemental needs trusts, may allow those under age 65 to continue to receive Medicaid while providing a trust for their benefit. In Pennsylvania a recipient of SSI (Supplemental Security Income) also receives Medicaid.
Note that all of the information contained here is general and the subject is complex. Those who are interested should consult an attorney with experience in these matters. However, for a basic understanding of special needs trusts, here is some background.
- What is a special needs trust? A special needs trust is a means whereby a disabled person may receive or continue to receive government benefits, notably Medicaid and/or SSI, while being the beneficiary of a fund to pay for special or supplemental needs.
- Who qualifies to be a beneficiary of a special needs trust? Most special needs trusts are for the benefit of disabled persons under age 65. It is possible for a friend or relative in his or her Will to set up a supplemental needs trust for a
beneficiary and the beneficiary could be over age 65 when the trust goes into effect. However, most supplemental needs trusts are of a type that requires that the beneficiary be under age 65.
- Who can establish a special needs trust? There are different types of special needs trusts. One type, known as a “third party” supplemental needs trust can be established by parents or by family or friends of an individual who has disabilities and is under age 65. It can be either “standalone” that is it is set up and funded on its own and takes effect immediately or it could be a “testamentary” special needs trust which is included as a section of a Will or Living Trust.
- Another type, a “self-settled” supplemental needs trust is established with the beneficiary’s own funds and is subject to special rules including a “payback” provision to the government after the person dies if there are funds remaining in the trust.
- A third type, a “pooled” trust includes several supplemental needs trusts of disabled persons under the management of a non-profit entity that handles administration associated with the trust.
- What is the difference between types of third party supplemental needs trusts? A testamentary third party special needs trust allows a relative or friend to leave assets by Will to the disabled individual without causing loss of benefits. It is important when drafting a Will where a disabled person on Medicaid or SSI is a beneficiary that the maker of the Will not name the person directly but instead leave the bequest to the supplemental needs trust under the Will. Otherwise, inheritance could cause, and often does cause the beneficiary to lose benefits. A standalone third party supplemental needs trust often established by a parent or other relative, can provide a means whereby other relatives and friends can contribute to a younger disabled person without disqualifying him or her for benefits. It can continue beyond the death of the person establishing the trust.
- What are the requirements for a supplemental needs trust established with the beneficiary’s own money. A “self-settled” supplemental needs or “payback” trust is extremely complex. Currently, although it is funded with the beneficiary’s own money, it can be established only by a parent, grandparent, a guardian or the court. Even if the disabled person is mentally competent, he or she cannot establish his or her own supplemental needs trust with his or her own funds. Legislation has been introduced to allow disabled persons to establish these on their own but it has not passed as of this time.
Supplemental needs trusts overall require that funds generally not be given to the individual but instead be used to pay providers and that the funds be used for “supplemental” or extra needs. The funds in the trust are generally not intended for food or shelter since it is expected that Medicaid and/or SSI would cover this and payment for food or shelter from the trust can trigger reductions in benefits.
Seek help if you need more information. Do not do this on your own.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.