By Laine Carver, Associate Attorney
All too often, people receiving public benefits like Medicaid or Supplemental Security Income (“SSI”) are disinherited from a relative’s estate. The fear is that an inheritance will disqualify the individual from those public benefits. However, the solution does not have to be to disinherit that individual. By creating a Special Needs Trust, the individual can likely receive the benefits of the inheritance while retaining their public benefits like Medicaid or SSI.
A trust is a legal creation in which a third-party—the trustee—has legal ownership of the trust assets for the benefit another person—the beneficiary. A Special Needs Trust is one created for the benefit of a person with a legally-recognized physical or mental disability and specific language that allows the beneficiary of the trust to retain public benefits like Medicaid and SSI. The trust assets can be used to pay for the beneficiary’s medical expenses, travel, entertainment, and other quality of life expenses. Furthermore, upon the death of the beneficiary, assets remaining in the Special Needs Trust can be paid to another party as determined by the language in the trust.
Self-Funded vs. Third-Party Funded Special Needs Trusts
A Special Needs Trusts may be funded in one of two ways. The first way is to fund the trust with the beneficiary’s own assets. This is a “self-funded” Special Needs Trust. The second way is to fund the trust with assets owned by a third party who wishes to pass those assets to the beneficiary. This is a “third-party funded” Special Needs Trust. Though largely similar, there is one very important difference between self-funded and third-party funded Special Needs Trusts: upon the death of the beneficiary, if the beneficiary received Medical Assistance under the state’s Medicaid plan, the amount of this assistance generally must be paid back to Medicaid under a self-funded trust. However, there is noMedicaid payback requirement when the Special Needs Trust is third-party funded. Therefore, it is extremely important to be certain that inheritances and gifts are made directly to an individual’s Special Needs Trust and not the individual, if at all possible.
Pooled Special Needs Trusts
Pooled Special Needs Trusts (PSNTs) are a common way for individuals to access the benefits of Special Needs Trusts at a lower cost. PSNTs are Special Needs Trusts managed by a non-profit organization that holds trust assets for the benefit of multiple individuals. Each beneficiary of a PSNT has their own sub-account within the trust itself. The benefits of PSNTs are plentiful. First, the pooling of trust assets reduces the administrative costs of managing the trust. For example, the cost of investing the trust assets is reduced since there are more assets to invest. Second, PSNTs are often managed by experts who specialize in Special Needs Trusts and public benefits like Medicaid and SSI. Finally, some PSNTs, like those managed by Wispact, provide grants to beneficiaries to pay for the attorney’s fees for establishing a sub-account within the trust.
First Step in Creating a Special Needs Trust
If you think you or someone you know could benefit from a Special Needs Trust, please do not hesitate to contact Russell Law Offices, S.C. to set up a consultation to determine if a Special Needs Trust is right for you.