One of the main purposes of estate planning is to ensure that you can provide for your loved ones after you are gone. If you have a loved one with a disability or chronic illness, providing for them might require a few extra steps. Giving money or other resources directly to someone with special needs can affect their eligibility for benefits like Medicaid and Supplemental Security Income (SSI). A special needs trust (SNT) allows you to avoid these risks while providing support to a loved one. An estate planning lawyer with knowledge of the laws of DC and Maryland can guide you through the process of creating a SNT.
A special needs trust is a legal entity created for the benefit of someone, known as the “beneficiary,” who needs help supporting themselves because of a mental or physical disability, or a chronic illness. People in this kind of situation often rely on public assistance for basic needs like food, shelter, and healthcare.
Programs like Medicaid and SSI restrict eligibility based on a maximum income and amount of assets. The purpose of a SNT is to provide support to a person with special needs without affecting their eligibility for public assistance. Placing property in the trust allows the beneficiary to continue to qualify for public benefits. Income from the trust can then provide for the beneficiary’s additional needs.
A person known as the “trustee” is responsible for managing the SNT’s assets. The trustee has a fiduciary duty to the beneficiary, meaning that all the decisions they make involving trust assets must be in the beneficiary’s interest, not the trustee’s interest.
Federal law governs SNTs. Until recently, only “a parent, grandparent, [or] legal guardian” of a person with special needs could create a SNT for their benefit. The law also allowed a court to create a SNT in certain circumstances. Congress passed a law in 2016 that allows people with special needs to create SNTs for their own benefit.
The 2016 law created two distinct kinds of SNTs: ones created by someone for someone else’s benefit, and ones created by someone for their own benefit.
Third-party SNTs are typically created as part of someone’s estate plan. As mentioned above, federal law mostly limits the creation of SNTs to parents, grandparents, and legal guardians. A third-party SNT can be included in someone’s last will and testament, or it can be part of a living trust created by a will. In either case, the SNT would not come into existence until after the person who created it dies.
A person can also create a third-party SNT while they are still alive. An inter vivos trust, which is created to avoid probate, can include a SNT. They can also simply create a stand-alone SNT. This often happens when multiple people are providing funding, such as if both sets of grandparents want to contribute.
The instrument creating a third-party SNT can specify what happens to the remaining trust assets after the beneficiary’s death. A person designated to receive SNT assets after the beneficiary dies is known as a “remainder beneficiary.”
Since 2016, individuals with special needs can create SNTs for their own benefit. This most often occurs when a person with special needs receives a windfall of some sort that could affect their eligibility for public assistance, such as:
In order to create a SNT for oneself, a person must be both legally and mentally competent to sign legal documents. Federal law states that they must meet the definition of “disabled” used to determine eligibility for federal benefits. They must also be under the age of sixty-five. The SNT must be established for that person’s sole benefit, meaning they are the only beneficiary of the trust.
Perhaps the most important difference between third-party and first-party SNTs involves the distribution of trust assets after the beneficiary’s death. A first-party SNT instrument can name remainder beneficiaries. Before the remainder beneficiaries receive anything, though, federal law states that any amounts received by the beneficiary from Medicaid must be repaid to the state Medicaid program.
If, for example, the beneficiary received $50,000 in Medicaid benefits during their life, and the trust has $60,000 in assets, the remainder beneficiaries will receive, at most, $10,000.
The trustee of a SNT is responsible for managing the trust’s assets, distributing benefits to the beneficiary or on the beneficiary's behalf, and making sure that those distributions are used in ways that do not threaten the beneficiary’s eligibility for public assistance. That last responsibility can be tricky.
Public benefits like SSI are intended to pay for basic needs like food and shelter. Medicaid covers regular healthcare expenses. SNT benefits are not supposed to pay expenses that are otherwise covered by public assistance programs. They may be used for:
SNT benefits used for countable assets may affect public assistance eligibility if it increases the beneficiary’s total amount above a certain limit. For SSI, a person cannot have more than $2,000 in countable assets.
Non-countable assets are assets that the Social Security Administration and state Medicaid agencies do not consider when determining eligibility for public assistance. SNT benefits may be used to purchase or maintain these types of assets, which include:
Estate planning attorney Joyce Ann Williams advises individuals and families in the District of Columbia and Maryland about their rights and options regarding estate administration issues. Please contact her today at info@jwilliamslaw.com or at (301) 585-1970 to get additional information about her probate services.
© 2024 J Williams Law, LLC|Legal Disclaimer|Privacy Policy
Law Firm Website Design by The Modern Firm