Estate Planning | Making a Difference One Family at a Time

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special needs trust 1We are going to explain how the trustee can use the funds in a special needs trust in this post. But before we focus on this particular detail, we will provide a broader overview so you understand why these trusts are utilized.

Preservation of Government Benefit Eligibility

Let’s say that you have a person with a disability in the family, and you want to leave them an inheritance. This individual relies on Medicaid for much-needed health insurance, and they receive a monthly stream of income through the Supplemental Security Income (SSI) program.

These benefits are only available to people with very sparse monetary resources. If you arrange for your loved one to receive a direct, lump sum inheritance through the terms of a will or an insurance policy, they could lose their government benefits.

Under these circumstances, the funds could be used to establish a first party special needs trust. Another name that is commonly used for the same device is a supplemental needs trust.

Medicaid is required to seek reimbursement from the estates of beneficiaries after they pass away. When a first party special needs trust has been established, assets that remain in the trust can be attached by Medicaid during the recovery phase.

For this reason, you would not want to leave a direct inheritance to the individual in question. You could establish and fund a third-party supplemental needs trust instead, and a step would be saved from a procedural standpoint.

More importantly, Medicaid would not be able to touch the remainder after the death of the original beneficiary. A successor that you name in the trust declaration would become the beneficiary, and they would inherit the assets.

Approved Expenditures

When you establish a special needs trust, you name a trustee to act as the administrator. Technically, you or any other mentally sound adult can act as the trustee, but you will not be around if you are using the trust as part of your estate plan.

Many people will use a professional fiduciary. Trust companies and the trust departments of banks provide trustee services, and there are other types of professionals that can be engaged.

If you use a qualified trustee, you can be sure that all the rules will be followed correctly, and an experienced financial manager will be controlling the assets. Yes, there is a cost involved, but it can be a wise investment in some cases.

In a general sense, the rule of thumb is that the trustee would not be able to provide the beneficiary with cash to pay for essentials like food, rent, and clothing. This gives the trustee latitude to use the funds to make the beneficiary more comfortable in many different ways.

Though there is a $1600 Medicaid asset limit, a home is not considered to be a countable asset (with an equity limit $906,000 this year). The trustee would be able to purchase a home for the beneficiary to live in, and a motor vehicle would also be permitted.

These are some of the other types of expenditures that would be approved:

  • Vacations
  • A paid companion
  • Medical and dental treatments not covered by Medicaid
  • Therapy and rehabilitation
  • Transportation
  • Computers and other types of electronic equipment
  • All types of recreation
  • Musical instruments
  • Tuition and training costs
  • Special equipment
  • Insurance

This list just scratches the surface, so you can really enhance the life of a loved one if you are in a position to convey significant funds into a supplemental needs trust.

Attend a Free Seminar!

We are conducting a series of seminars over the coming weeks, and you can come away with a great deal of useful information if you attend one of these sessions. There is no charge, and you can see the dates and obtain more information if you visit our seminar schedule page.

Need Help Now?

If you have already determined that it is time to work with a Hartford, Connecticut estate planning attorney to put a plan in place, we are here to help. You can send us a message to request a consultation appointment, and we can be reached by phone at 860-548-1000.

 

 

Barry D. Horowitz, Estate Planning Attorney
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