Making allocations for loved ones with special needs requires special care. Unlike other beneficiaries of your estate, your loved ones with special needs cannot inherit money directly. Doing so could put their Medicaid benefits at risk. If you wish to provide for an individual with special needs, it is vital you adhere to specific estate planning strategies.
What is Supplemental Security Income?
Supplemental Security Income (SSI) is a needs-based program. It helps those who have very limited income and resources. SSI specifically helps people who cannot work to support themselves due to blindness, advanced age, or disability.
While the Social Security Administration manages SSI and traditional Social Security, they are different programs. For instance, Social Security is an entitlement program while SSI is not. With traditional Social Security, additional sources of income do not affect the amount of Social Security you receive. However, additional sources of income count against SSI on a dollar-for-dollar basis.
Essentially, for every extra dollar your loved one with special needs receives, they will lose one dollar of SSI benefits. This will continue until they are no longer eligible for benefits. Not only will losing SSI remove your loved one’s access to government funds, but also access to Medicaid.
Losing Medicaid benefits can be extremely detrimental to your loved one. This is why it is vital to manage a disabled person’s potential sources of income wisely. Involving a trusted estate planning attorney can help greatly with this.
What kinds of special needs trusts are there to choose from?
Special needs trusts can assist with trust administration in many ways. How depends on the variety of trust. There are three types of special needs trusts: first-party trusts, third-party trusts and pooled trusts.
A beneficiary may choose a first-party trust when the assets beneficiary is managing assets that they directly own. For instance, assume a person with special needs receives a direct inheritance. That person may establish a first-party special needs trust. This trust ensures that the inheritance does not compromise their government benefits.
A third-party trust contains assets that have never belonged to the beneficiary. If parents wish to set up a special needs trust on behalf of a minor child, this is a third-party trust.
Finally, third-party organizations, typically non-profits, are the ones that create pooled trusts. With a pooled trust, individuals can create accounts within the trust. Within these individual trusts, beneficiaries can manage their own accounts. This allows the individuals to access the trusts according to their individual needs.
How does the trust work?
A special-needs trust can protect extra income. Otherwise, special needs individuals may lose government help. To prevent this, the law allows individuals to create an irrevocable trust as a shield.
There are still rules attached to how a beneficiary may spend money that is in a special needs trust. The beneficiary may not use funds to pay for food or shelter. Prohibited expenses include utilities, as well as room and board. Instead, the beneficiary may use special needs trust funds for “extra” expenses.
Allowable expenses may include supplementary education, transportation, or private rehabilitation devices. Many think of a special needs trust like a “parents' pocket,” as it pays for special expenses above and beyond the basics.
Understanding how your loved one’s special needs trust interacts with government benefits can be complex. However, AmeriEstate is here to help. Contact us today to learn more about our estate planning services.
