Special Needs Planning
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What is a supplemental needs trust and what does it do?
A Supplemental Needs Trust ("SNT") (also referred to as a Special Needs Trust) is a legal document constructed for the benefit of an individual with a disability. SNTs have been used for many years but were given "official" legal status by the U.S. Congress in 1993. SNTs may either be a "stand alone" document or be part of a Last Will and Testament.The main purpose of an SNT is to Preserve Governmental Benefits and Protect Assets. Governmental benefits may include Medicaid, Supplemental Security Income (SSI), vocational rehabilitation, subsidized housing, and other needs-based benefits. For purposes of qualifying for certain governmental benefits, an individual cannot have personal assets greater than $2000.An SNT allows an individual with a physical or mental disability, or a person with a serious illness, to have an unlimited amount of assets held in "Trust" for his or her exclusive benefit. If properly drafted, those assets will not be counted as the individual's assets when qualifying for governmental benefits. Even if the beneficiary of the Trust is not receiving governmental benefits, he or she may be eligible for additional community and agency services only if he first qualifies for governmental benefits..The Trust must be "irrevocable," meaning that the trust cannot be terminated without the consent of the Trustee.
What can you use SNT for?
An SNT allows supplemental and extra care for the individual "over and above" that which the government provides. Though Medicaid rules sat the Trust cannot be used for housing food, there may be circumstances that are exceptions. For instance, though paying for groceries may not be strictly allowable, going out to dinner would be. Vacations and entertainment are also permitted.
My family is wealthy so we're not very concerned about governmental benefits. Why should we bother setting up a Supplemental Needs Trust?
Excellent question! I'm glad you asked. Though you may not be concerned about governmental benefits, you may be interested in various community services for your family member. Certain agencies only make their services available to individuals who qualify for governmental benefits, regardless of whether they use them or not. Furthermore, Trust funds are not subject to creditors or seizure. In other words, if the trust beneficiary should ever be sued, assets placed in the Trust are not subject to a judgment.
My family is of modest means. Unfortunately, we really don't have much money to leave for our family member.
Often the most valuable asset a person owns is a house. If a house is left to the family member in a Will, that asset will be counted against her for purposes of qualifying for governmental benefits if not bequeathed to the Trust. Also, a relatively inexpensive way of leaving money for your loved one is by making him a beneficiary of a life insurance policy. If left to the beneficiary as opposed to the Trust, these assets may disqualify him from benefits.
If I have to be "worried" that my son will have too much money, can't I just leave it to his sister? After all, she loves him and will look after him.
"Disinheritance" was often used before Supplemental Needs Trusts were officially recognized by Congress. However, even if the sibling is earnest in her efforts to take care of her disabled brother, there are circumstances that could arise that are beyond her control. She may be subject to a judgment as a result of an accident, bankruptcy, or divorce. These assets will be available to satisfy the judgment.
Transferring a beneficiary's own assets to something or someone other than an SNT may be considered "transfers for purposes of benefit qualification" and would be subject to a 36-to-60 month "look back" period. This may result in the disabled beneficiary being ineligible of receiving benefits for up to five years after the date of transfer. Transfers to SNTs are exempt from this "look back" and will therefore not disqualify the individual from receiving benefits.