If Your Child is Receiving Medicaid Benefits or SSI
If your child is receiving, or may be eligible to receive, means-tested government benefits such as Supplemental Security Income (SSI) and Medicaid, you should get professional legal advice before naming your child as the beneficiary of any will, trust, life insurance policy, bank account, retirement account, investment account, etc. Your child’s receipt of income or assets could cause your child to lose his or her SSI or Medicaid benefits. Anything considered to be an available financial resource or income to your child could impact his or her eligibility for such means-tested benefits. There are ways to structure trusts and estate plans to avoid impacting your child’s eligibility, but due to the extremely complex nature of the laws involved, you should consult an attorney first.
Can a Special Needs Trust Continue After You Die?
Yes. The duration or length of the trust depends on the language of the trust document. If you are the original trustee of the trust, you should name a successor trustee to serve as trustee in the event of your death. It is generally recommended that you name at least two or three successor trustees in the event your first choice for successor trustee is unable to serve for any reason. The duration of the trust may be for the life of the beneficiary (the child) and will be spelled out in the trust document.
How to Establish a Special Needs Trust
If you need to set up the trust due to a pending personal injury award, settlement, inheritance, or other lump sum amount your child is about to receive, the special needs trust can be written as a stand alone document to become effective immediately. However, if you only want the special needs trust to be established in the event of your death or upon the passing of both the child’s parents, it can be written into your Will or Trust. You should consult an estate planning attorney for assistance in drafting the trust documents.
It is critical that certain technical terms and clauses be used in the trust document. For example, the special needs trust must be created solely for the benefit of a person under a disability or chronic illness and not for any other purpose whatsoever. The trust also must clearly state that the assets of the trust are only to be used for supplemental and extra care over and above what the government provides and not for the basic support of the child. The laws applicable to special needs trusts vary from state to state, so it is imperative you consult an attorney to ensure your SNT is properly drafted.
The first step in the process is to choose a trustee, as well as successor trustees, to administer the trust on behalf of the beneficiary. Next, you need to have the trust documents drafted and executed. Finally, you need to fund the trust. This is done by putting title to property in the name of the trust, such as opening a bank account in the name of the trust and legally putting other property to be held by the trust into the trust’s name.
What is a Special Needs Trust or SNT?
A special needs trust is a type of trust created to hold and disburse property for the benefit of a child or adult with physical or mental disabilities. Such child is the beneficiary of the trust. A special needs trust can be set up for a variety of reasons such as: a. appointing a trustee to manage property because the beneficiary is unable to do so; b. as part of a parent’s estate plan for the benefit of his child; and c. to ensure the beneficiary’s eligibility to receive Supplemental Security Income, called SSI, and Medicaid is not impacted by the beneficiary’s receipt of a lump sum of money or other property. For example, a SNT is often set up when a special needs child is about to receive a personal injury award from litigation or an inheritance. A special needs trust may also be funded by the proceeds of life insurance.
A special needs trust is drafted so SSI and Medicaid will not consider the property in the trust to be income or a financial resource of the beneficiary. The trustee of the trust has sole discretion over disbursements for the benefit of the beneficiary. The trustee is not allowed to make disbursements from the trust that would jeopardize the beneficiary’s eligibility for SSI and Medicaid. Money from a special needs trust cannot be used for basic support for the child. It must be used to pay for supplemental expenses of the child such as travel, dietary supplements, entertainment, and anything over and above what government benefits provide.
The assets in the special needs trust are generally protected from creditor claims and related types of claims. A special needs trust must provide that upon the death of the beneficiary, the remaining property in the trust must be used to repay the state for its payments on behalf of the beneficiary.
What is a Self-Settled Trust?
A self-settled trust, or self-settled special needs trust, is a type of trust funded by the assets of the beneficiary. For example, if a child receives an inheritance, life insurance proceeds, or a personal injury settlement, it may be beneficial for those assets to be put into a trust rather than be owned by the child. Otherwise, ownership of such assets could cause the child to become ineligible to receive SSI or Medicaid.
What is a Supplemental Benefits Trust?
The terms Supplemental benefits trust, supplemental needs trust, and SNT are used interchangeably in Medicaid planning, estate planning, and special needs trusts. Some attorneys prefer the term supplemental benefits trust because the trust is designed to pay for supplemental benefits for the beneficiary that are not provided by the government.
How Much Does a Special Needs Trust Cost?
The fees to draft and set up a special needs trust can range from $1,500 to $6,000 or more. The best way to find out the fees to have a special needs trust drafted is to call at least three different law firms in your state and request a free fee quote. If you retain a trust company to manage the assets of the trust rather than managing them on your own as trustee, the trust company can charge a percentage of the assets held in the trust, such as 1 percent, more or less, annually. Most trust companies will not agree to manage a special needs trust with assets of less than $250,000 to $300,000. However, there are some firms willing to manage smaller amounts. Ask your financial advisor or bank for more information.
How to Find a Lawyer to Draft a Special Needs Trust
Our estate planning website contains links to several sites that contain lawyer directories and other resources to find an attorney. It is essential that you ask the attorney to detail his or her experience with estate planning, trust law, Social Security, Medicaid planning, and special needs trusts. This is a highly specialized area of law, so you don't want to hire an attorney with no experience drafting special needs trusts. It may take a lot of time to make phone calls, do online research, ask for referrals, and locate the right lawyer, but it will be worth the effort to ensure your special needs trust is prepared properly and your child's right to benefits is protected. One good question to ask the attorney is how many estate plans has he or she prepared that included provisions for a special needs child or involved Medicaid planning.
To Learn More About Estate Planning Options for Parents with a Special Needs Child
This page provides a brief overview of this very complex subject. To ensure you choose the right type of trust and are able to select a qualified attorney to prepare your estate plan, you may want to learn more about special needs trusts. The following books are suggested reading:
