SPECIAL NEEDS TRUSTS:
HOW SPECIAL NEEDS
TRUSTS ARE FUNDED
July 15, 2021
If you or a loved one is disabled and receiving public benefits through Medi-Cal or Supplemental Security Income (SSI), you are subject to income limitations to remain on those programs, yet they cover only food, shelter, and medical care. How do you pay for the other necessities and comforts of life?
The answer is through a special needs trust (SNT), which can be established to cover the rest of life’s needs without jeopardizing public assistance.
If you’re located in or near Redlands, California, including the cities of Rancho Cucamonga, Palm Springs, and Riverside, contact the special needs trust attorneys at The Elder & Disability Law Firm, APC. The team will provide you personalized service and help you create a special needs trust that meets all legal requirements and enables you or your loved one to have the added assistance they need and deserve.
DISABILITY & SPECIAL NEEDS TRUSTS
The Code of Federal Regulations states that “an individual shall be considered to be disabled…if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment….” The section further clarifies that the disability must have lasted — or will last — for at least 12 months, or is “expected to result in death.”
If a person meets this definition, and otherwise cannot afford to care for themselves, then Medi-Cal and Supplemental Security Income (SSI) become available.
As mentioned, however, these programs cover only the basics and then not always to the fullest extent. Some medical expenses, such as for certain therapies, equipment, and services are not covered. Other everyday living expenses are left up to the disabled person or their family to provide, including:
Caregiving and personal assistance
Computers, cell phones, television, appliances
Grooming, dry cleaning, clothing
Yard services, home security services
Accountant and attorney expenses
If the disabled or family members pay directly for these services, the money can be counted as income to reduce or void public assistance. The key is to fund these services through the implementation of a special needs trust (SNT) so that the disabled individual does not directly pay for any of these needs. Under an SNT, a trustee will be responsible for making these payments from the trust.
SETTING UP A SPECIAL NEEDS TRUST
Special needs trusts can be first-party, third-party, or pooled (see below), but the key to avoiding penalties under the requirements of public benefits is that the assets placed in the trust be specially designated.
The assets placed in the trust must be totally under the control of the trustee and be used solely to supplement SSI, Medi-Cal, or other benefits, such as HUD housing assistance and In-Home Support Services (IHSS), and not to pay for benefits otherwise provided under those programs. The trust document must also state that the beneficiary has no control over the assets and cannot give them away to anyone else.
Any type of asset can be placed in the trust, including real estate, stocks, collections, jewelry, a business, or patents, but since the primary function of the trust is to help pay living expenses, those assets may have to be sold to provide cash to fund those expenses. Life insurance policies are also often used for long-term funding of the trust.
Once a special needs trust is established, parents, grandparents, or anyone who cares about the beneficiary can designate assets to the trust.
TYPES OF SPECIAL NEEDS TRUSTS
As mentioned, there are three basic types of special needs trusts, first-party, third-party, and pooled.
If the disabled individual inherits money or comes into a cash settlement that could jeopardize SSI or Medi-Cal, a first-party SNT can be established to fund otherwise unfunded living expenses. This type of trust was not legal until 2016 but is now available if an individual is under 65 years of age and has a disability that qualifies for Social Security. It can be set up by the individual, their parent, grandparent, legal guardian, or the court. Funds remaining in a first-party SNT must be used to repay Medi-Cal when the beneficiary dies.
Anyone except the beneficiary can help fund a third-party SNT, which is generally established by the parents of the disabled. Aunts, uncles, grandparents, even friends, or charitable individuals or entities can help fund it. Since the assets do not originate from the beneficiary, as in a first-party SNT, anything remaining after the beneficiary’s death cannot be touched by Medi-Cal for repayment. The trust must designate what happens to the funds upon the beneficiary’s passing.
This is a combination of first-party and third-party, with funds being provided by both the disabled individual and their family members and other caring parties. Pooled SNTs must be managed by a non-profit organization and can include more than one beneficiary. Any money left after the beneficiary’s death will be used to repay Medi-Cal, and if any money is left after that, it will be awarded to anyone specifically named in the trust.
WORK WITH AN EXPERIENCED ATTORNEY
Setting up a special needs trust requires great attention to detail lest the funds used to help the beneficiary trigger adverse consequences, such as jeopardizing their SSI or Medi-Cal benefits. There is no one-size-fits-all solution such as a simple downloadable form to fill out. You will need the help and care of an experienced special needs trusts attorney to create a trust that will serve the lifelong special needs and interests of the beneficiary.
If you’re in or around Redlands, California, contact The Elder & Disability Law Firm, APC, for individualized attention and care. The firm has helped countless others with their special needs trusts and stands ready to help you every step of the way.