Writing a valid will is a gift for grief-stricken family members. Not only does estate planning communicate how assets are to be distributed and to whom, but it can also provide lasting support and protection in the form of trusts for loved ones. Particularly vulnerable is the individual with intellectual and developmental disabilities (IDD) who may be well-served by a Supplemental Needs Trust, also known as a Special Needs Trust.
Definition of a Special Needs Trust
While a person with IDD may qualify for federal benefits such as social security and Medicaid, these benefits are designed for those with limited assets and income, and the benefits may barely cover the essential needs of a person. A Special Needs Trust works in tandem with social security and Medicaid, protecting a person’s eligibility for these programs while also providing additional financial support. Because the assets held in trust do not impact eligibility for federal benefits, the beneficiary has access to assets from the trust as well as federal benefits. As soon as the Social Security Administration defines a person as having special needs, a family or individual may set up a Special Needs Trust. However, the trust must be established before the trustee turns 65 years old.
Types of Special Needs Trusts
Three types of Special Needs Trusts are available:
- A First Party Trust – This trust is set up by the IDD if that person has his or her own assets and needs to qualify for Medicare. It is also a useful option if the person receives an inheritance which might otherwise make him or her ineligible for government benefits. Family members or guardians may also create the trust for that person’s assets. At times, a court orders that a Special Needs Trust be created for a person with special needs as well. The big disadvantage of a first-party trust is that any unused funds from the trust go to the repayment of state Medicaid funds.
- A Third-Party Trust – This trust is set up by a third party and does not use the assets of the IDD individual to fund it. This type of trust may go into effect as soon as it is written, or, if the person is designated as beneficiary of a will or trust, it may go into effect at a later date. The advantage of a third-party trust is that any unused funds are not used to repay Medicaid. Instead, the will or trust designates the beneficiary who will receive the funds after the death of the trustee with IDD.
- A Pooled Trust – This trust is set up by certain non-profit organizations. Funds are pooled and invested, and each beneficiary receives a separate Special Needs Trust. Pooled trusts may be either first-party trusts, which require repayment of Medicaid funds, or third-party trusts, which do not require repayment of Medicaid funds. The advantage of a pooled trust is that professionals are investing and administering the pooled funds, and generally the amount of money required to buy into the fund is low. ARC of Texas and ABLE accounts are both examples of Pooled Trusts.
While Special Needs Trusts protect those with special needs, strict regulations are in effect to prevent their misuse. For example, trust money cannot duplicate the federal benefits a person receives; since social Security and Medicaid pay for food and shelter, trust money cannot be used for food or shelter. The trustee may not receive funds in the form of gift cards or cash. However, money from the trust can provide funds for other essentials such as transportation, clothing, or home improvements.
Pooled trusts often support people with specific types of disabilities. Those trusts also have many regulations to ensure that the individual qualifies for the trust and uses any funds appropriately. Failure to follow regulations established by the state and/or the organization may result in the trustee's losing social security and Medicaid benefits.
Estate planning is important no matter the circumstances, but providing for a family member with special needs is even more crucial. A probate lawyer will ensure that the Special Needs Trust follows required guidelines and is the best fit for the family and the individual with IDD.
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