Special Needs Trusts: Eligibility for Federal & State Assistance

If you have a child with special needs, you want to be sure that once you are gone, he or she will be well taken care of. Special needs individuals under the age of 65 are eligible for Medicaid, Supplemental Security Income (SSI) and other benefit programs as long as they do not have more than $2,000 in their own name.

The Trouble with Gifts Outside of a Trust

The trouble is that parents and well-meaning relatives and friends may give money to your child, either now or in their wills, and this could make the child ineligible for some benefits, creating the need to spend down the money and re-apply for the benefits. Some parents try to solve this problem by disinheriting their child and giving the money to a sibling or family member who promises to care for the child, a solution that puts enormous stress on the sibling or family member and doesn’t guarantee that the child’s needs will be met.

The Benefits of a Special Needs Trust

Your best bet is to open a special needs trust. This is a living trust that is created for a person who, because of physical or mental disability, is receiving federal and state government benefits for medical care and daily living needs, such as SSI, Medicaid, vocational rehabilitation, subsidized housing and others. The purpose of the special needs trust is to provide a source of funds without disqualifying the beneficiary from receiving those government benefits. The money in their own name stays at the $2,000 or below level, they receive their government benefits to pay for their basic care, and they have the advantage of getting additional money from the trust at the trustee’s discretion, to pay for care over and above the basics, without endangering their eligibility for government entitlements.

How a Special Needs Trust Works

This trust may be created in your will and acts as a receptacle for money earmarked for the child. All money that is left to your child at any time will go into this trust, even if it is a gift or bequest from another family member or a friend. It can improve the quality of life for a disabled child or adult tremendously. Typically, special needs trusts are designed so that none of the money can be used for food, clothing and shelter, because these are all services provided by the government programs, but the money may be used for amenities government programs don’t provide, such as travel, entertainment and recreation.

Your child will live a better life and continue being eligible for government programs. If you have a disabled child, do consider adding a special needs trust to your estate plan. Discuss it with an attorney who has experience creating this specific type of trust.

For more information about special needs trusts, check out the following articles:

• Special Needs Trust Overview
• Types of Special Needs Trusts and Who Can Set Them Up
• Who Should Have a Special Needs Trust
• How to Create a Special Needs Trust and What to Include In It
• How to Fund a Special Needs Trust and How the Money May Be Spent

Case Studies: Special Needs Trusts and Eligibility for Federal & State Assistance

Case Study 1: Preserving Government Benefits With a Special Needs Trust

Sarah is a single mother with a 20-year-old daughter, Emily, who has severe developmental disabilities. Emily relies on Medicaid and Supplemental Security Income (SSI) for her medical care and daily living needs. Sarah wants to ensure that Emily continues to receive these vital benefits even after she is no longer around to care for her.

Sarah decides to establish a special needs trust for Emily as part of her estate plan. She carefully consults with an attorney experienced in this area to create the trust, naming her sister as the trustee. Sarah plans to leave a substantial amount of money to the trust in her will, which will provide for Emily’s additional needs and enhance her quality of life without jeopardizing her eligibility for government entitlements.

By establishing the special needs trust, Sarah can ensure that Emily’s basic care is covered by Medicaid and SSI, while the trust funds can be used for amenities such as travel, entertainment, and recreation. This case study demonstrates how a special needs trust can safeguard a disabled individual’s access to government benefits while improving their overall well-being.

Case Study 2: Protecting an Inheritance Through a Special Needs Trust

David is a successful businessman who has a son named Michael with autism. David has accumulated significant wealth over the years and wants to leave an inheritance for Michael that will support him throughout his life. However, David is concerned that an outright gift or inheritance to Michael could make him ineligible for crucial government benefits.

To address this concern, David establishes a special needs trust specifically designed for Michael’s benefit. He consults with an attorney who helps him draft the trust document, outlining the proper provisions and restrictions to comply with government regulations. David names a professional trustee who is knowledgeable about managing special needs trusts.

By incorporating the special needs trust into his estate plan, David ensures that the inheritance intended for Michael will be managed by the trustee in a way that does not impact his eligibility for Medicaid, SSI, or other vital assistance programs. This case study highlights how a special needs trust can provide long-term financial security for individuals with disabilities while preserving their access to essential government benefits.

Case Study 3: Coordinating Support From Multiple Family Members

The Johnson family consists of elderly parents, Robert and Margaret, and their adult daughter, Emma, who has cerebral palsy and requires ongoing care. Robert and Margaret are concerned about how Emma will be provided for after they pass away. They want to involve their other children in Emma’s care and financial support.

To address these concerns, Robert and Margaret establish a special needs trust for Emma and name all their children as trustees. They hold a family meeting to discuss the trust and the roles and responsibilities of each trustee. The family agrees to contribute to the trust regularly to ensure Emma’s future needs are met.

Through the special needs trust, the Johnson family creates a unified and coordinated approach to support Emma’s well-being. Each sibling understands their role in managing the trust’s funds and ensuring that Emma’s financial and care needs are met throughout her life. This case study illustrates how a special needs trust can facilitate collaboration and provide peace of mind for families with disabled loved ones.