A special needs trust, sometimes called a supplemental needs trust, is the term for a trust that does not interfere with important government benefits such as Medicaid and Supplemental Security Income (SSI). An SNT generally allows a person with a mental or physical disability to have assets held by a trustee who can supplement certain government benefits in certain ways.
There are generally five types (at least) of special needs trusts in two distinct categories:
- "Third Party" Special Needs Trusts: This type of SNT is frequently established by a parent or grandparent for the benefit of a disabled child/grandchild/heir. If a disabled person is receiving Medicaid or SSI, you are able to leave money to a beneficiary in this type of trust without effecting the beneficiary's Medicaid/government benefits. There are a few types of Third Party SNTs:
- Third Party: For lack of a better name, this is the basic SNT you would establish to help your disabled family member.
- ABLE Account: This is a kind of SNT that allows a family member to gift funds to a special account under certain rules. These accounts are closer to a 529 pre-paid college plan than anything else.
- "First Party" Special Needs Trusts: These types of SNTs are established under 42 USC 1396p(D)(4)(a) and can be complicated to attorneys and non-attorneys alike. Basically, these trusts are used in various SSI/Medicaid scenarios. They are also called "Payback Trusts" as assets in these trusts generally "pay back" any Medicaid lien when the trust beneficiary dies. Three types of First Party SNTs exist:
- D(4)(a) Trusts: This type of SNT is established by an individual before age 65 with their own money in order to keep or recieve Medicaid/SSI benefits. This type of SNT is fairly complicated, but is frequently used when a disabled person receives a larger settlement from an injury lawsuit or an inheritance and these funds would interfere with their SSI/Medicaid benefits.
- Pooled Trusts: This type of SNT is used to help the disabled and the elderly protect their own assets when going on Medicaid. We use pooled trusts all the time in our Medicaid planning practice.
- Qualified Income Trusts: This SNT is used to when a long-term care Medicaid's applicant's income exceeds the monthly limit (see here for the monthly limit). If the income exceeds the applicable limit, Medicaid will only pay for someone's long-term care if a "QIT" is established.
This article links to the many different types of SNTs in Florida, all of which are used for different purposes under very specific rules. For instance, QITs are only used for long-term Medicaid in Florida while D(4)(a) trusts cannot be established for anyone over age 64, so it gets complicated quickly.
My Mom/Dad is in the Nursing Home - Can We Put His/Her Assets into a Special Needs Trusts to Protect Their Assets?
Yes, but (probably) not like you think. The only SNT that is useful from a long-term medicaid planning scenario is a Pooled Trust, but we generally do not use this in most cases as these are "pay back" trusts. We get this question a good bit when mom/dad is now in a nursing home and the family finds out that the nursing home costs $10,000/month! Luckily, assets can be legally protected if your loved one is in a nursing home.
Why Use our Law Firm on Your Estate Planning and Elder Law?
The reality is that not all estate planning attorneys are fluent with special needs trust planning. Many estate planning attorneys do not deal with Medicaid/SSI/Government benefits in any aspect and are not familiar with Medicaid or other government benefits. At DeLoach, Hofstra & Cavonis, P.A., you have the best of both worlds - an estate planning attorney fluent in all aspects of estate planning, IRA planning and tax planning, along with knowledge in Medicaid, elder law and asset protection planning for you and your loved ones.
Transfers to Special Needs Trusts are Not Gifts for Medicaid Purposes
Regardless of the type of special need trust, a transfer to an SNT is NOT a gift for Medicaid purposes. Many people are familiar with the the 5 year Medicaid look back period, which basically says that you cannot give money away to qualify for Medicaid. Transfers to special needs trusts do not create a transfer penalty, importantly. One thing to note is that SSI related Medicaid has only a 3 year look back period.
Special Needs Trust Can Provide Peace Of Mind
The term "special needs trusts" can be confusing for everyone. We are glad to help review you and your family's situation to help discuss how a special needs trust can help you and your family.
Guardianships and Special Needs Trusts
Special needs trust planning frequently has to deal with planning for incapacitated persons. Our law firm has a guardianship attorney on staff and we can help you and your family in this difficult time.