Consider A Trust To Take Care Of A Family Member’s Special Needs
If you or a loved one has a disability and receives financial assistance from the government or may be entitled to government assistance because of the disability, a Special Needs Trust may be important to have. Creating a Special Needs Trust and funding it with new assets can prevent loss of eligibility for assistance while enhancing the quality of life of the person with special needs.
Delzer, Coulter & Bell, P.A., in Port Richey, Florida, advises individuals and families on the creation and use of Special Needs Trusts and other kinds of Trusts. Our board certified attorneys have been serving Pasco County for 60 years.
Two Types Of Special Needs Trusts
Two types of Special Needs Trusts (or sometimes referred to as Supplemental Needs Trusts) exist. One type is used when funding the Trust with a disabled person’s own assets (a Self-Settled Special Needs Trust) and the other type is used when someone else’s assets are funding the Special Needs Trusts (a Third-Party Special Needs Trust).
The use of the incorrect Trust may either unnecessarily restrict the distribution upon a disabled person’s death or, even worse, can cause disqualification from public benefits. Specifically, a Self-Settled Special Needs Trust (sometimes known as a “d4A” Trust, which is a reference to the subsection of the United States Code that authorizes this Trust) requires that upon the disabled beneficiary’s death, any remaining Trust funds must first be used to pay back the state for any Medicaid benefits the beneficiary received during their lifetime.
In a Third-Party Special Needs Trust, the grantor of the Trust may designate a beneficiary of their choice to receive any funds left after the death of the disabled beneficiary. The additional requirements of a Self-Settled Special Needs Trust are that the Trust must be created and funded before the disabled beneficiary turns age 65, and it must be established by the disabled person or the disabled person’s parent, grandparent or legal guardian or by the court. One exception to the rule requiring funding before age 65 is if the Trust receives payments from a structured settlement that was created before age 65. A Pooled Trust is an additional type of Self-Settled Special Needs Trust that can be created regardless of age. The disabled beneficiary transfers his or her assets to a Trust that is managed by a nonprofit organization, which “pools” all participants’ assets and creates a subaccount for each individual beneficiary. A Pooled Trust does contain a payback provision.
How Trust Funds Can Be Spent
The Trustee should not spend Trust funds for the beneficiary on things that the government assistance provides. Rather, the Trustee should use the funds to add other quality of life benefits over and above what the governmental assistance provides. The Trustee should always ascertain the nature and extent of the governmental assistance available to the beneficiary and only use the Trust funds again to supplement and not replace such assistance.
For example, if a beneficiary is receiving Medicaid benefits, Trust funds should not be used to pay for medical expenses that Medicaid covers and, generally, if the beneficiary is receiving Supplemental Security Income (SSI), Trust funds should not be used to pay for food or shelter expenses since the SSI assistance is intended to provide for these basic needs. Below is a list of what are considered “shelter” costs, which if paid for by the Trust, will decrease or may even eliminate the SSI payment:
- Rent or mortgage payments
- Real estate taxes
- Homeowner’s insurance if the insurance is required by the mortgage company
- Homeowners or condominium association dues
- Electric or gas bills
- Water
- Sewerage
- Garbage collection
Use of Trust funds to pay for some housing costs, however, will not negatively affect the beneficiary. Below are some examples of such costs:
- Cable service
- Internet service
- Telephone service
- Purchase of furniture or furnishings
- Lawn care
The Trustee should buy things or provide things for the beneficiary rather than give the beneficiary cash that could put the beneficiary over the asset or income caps necessary to qualify the beneficiary for the assistance. In addition to the allowable shelter expenditures listed above, the Trust can pay for clothing, entertainment or travel expenses, automobile expenses, pet expenses or any medical costs not covered by public benefits.
If the disabled beneficiary does not have a prepaid funeral arrangement in place at the time of the creation of a Self-Settled Special Needs Trust, the Trustee should use Trust funds to purchase a prepaid funeral contract, as funeral costs are a prohibited expenditure from the Trust upon the disabled beneficiary’s death before payback of the state.
In order for the Trustee to maximize the benefit of the Trust for the beneficiary, the use of the right distribution standard, or in other words, how the Trustee is allowed to distribute money to the disabled beneficiary, is a very important aspect of preparing a Special Needs Trust. Using the wrong distribution standard can also either cause the Trust to be unnecessarily restrictive, so that the beneficiary cannot use the Trust money to the degree they should, or not restrictive enough, so that it disqualifies the disabled beneficiary from public benefits provided for by governmental assistance.
Learn More About Special Needs Trusts
Discuss your estate planning goals considering your family member with special needs. Contact Delzer, Coulter & Bell, P.A., by phone at 727-361-2894 or by email through this website to request a consultation.