Asset Protection and Government Benefits
People with disabilities who utilize Medicaid and/or Supplemental Security Income (SSI) benefits, or may need these benefits later in life, can only have a certain amount of money in their name in order to qualify for these programs.
So, what can you do if your client receives an unexpected windfall of money that could cause them to be ineligible for these services? Most commonly this is caused by a person receiving a direct inheritance from a loved one, proceeds from a personal injury settlement or other lawsuit, a retroactive Social Security benefits payment, or other monetary gift.
A person may also need to spend-down funds on a periodic basis if they have a Medicaid income spend-down or they receive SSI benefits and their bank account is recurrently going over the $2,000 resource limit.
In these situations, your client may be forced to spend down the funds quickly in order to avoid causing any interruption in their services. This may work with modest sums of money, but often even then the person could benefit from sheltering the funds in an irrevocable special needs trust (SNT) or pooled trust. This way the money can be used throughout their lifetime on items and services that will improve their quality of life and help them build some financial security.
Purpose of a First Party Special Needs Trust
A trust is a legal agreement whereby a person gives money to another person or entity, called the trustee. The trustee manages the funds for the benefit of a person with a disability called the beneficiary.
A first party special needs trust (SNT) is a special type of irrevocable trust designed to help people with disabilities protect their eligibility for government benefits without having to forgo money or assets they are entitled to. A SNT can play a critical role in helping people with disabilities receive the best quality of life possible by maintaining their eligibility for the essential services that support their daily living needs while allowing them to save for the future and make life-enhancing purchases that their benefits do not provide. The trustee of an SNT also plays an important role in protecting the funds from being spent too quickly and as a fiduciary has a legal obligation to ensure that the beneficiaries’ interests in trust property are protected.
Establishing a Special Needs Trust
You can create an SNT with the assistance of a legal professional where an attorney drafts the trust document and you choose a trustee to manage the assets. Individual trusts are often more expensive to set up and maintain, however, you also have the freedom to put in terms of your own and to select your own trustee.
Highlights of a Special Needs Trust (SNT):
- Beneficiary must be under the age of 65
- Freedom to choose your own trustee – could be a family member or other professional person or entity
- May take longer to establish, must hire an attorney to draft trust document
- Typically more expensive to set up and maintain, especially if you choose a professional/corporate trustee
- If the trustee does not have investment management experience, you may need to seek additional support to maximize the investment opportunities
- First party SNTs, funded with a person with a disability’s own money, must have a payback provision to reimburse Medicaid in an amount equal to any lien upon the death of the trust beneficiary
Benefits of a Pooled Trust (even under age 65)
Established under Section 1917(D)(4)(C) of the Social Security Act 42 U.S.C. § 1396p(d)(4)(C), a pooled trust is managed by a non-profit organization such as NYSARC, Inc. and contains the assets of many different individuals, each held in separate sub-trust accounts.
A pooled trust is quick and inexpensive to establish and maintain – making it a great option for clients even under the age of 65. It also offers the benefits of professional trust administration at an affordable cost.
- Beneficiaries of any age can used a pooled trust, however, once a person is over age 65 they can ONLY use a pooled trust to protect assets (income and resources)
- Quick and inexpensive to establish
- Documents approved by Medicaid and SSA – attorneys do not need to draft documents and submit to appropriate agencies
- Do not need to select a trustee, professional non-profit organization serves as trustee with a legal obligation to ensure the funds are used in the best interest of the trust beneficiary
- Financial institution specializing in fiduciary services and wealth management serves as co-trustee to manage investments
- Personalized service from case managers with vast experience working with people with disabilities
- Great option for modest sums of money that a corporate trustee may not be willing to manage
- Upon the death of the beneficiary, funds are typically retained by the trust to support other people with disabilities who are served by its philanthropic mission
- However, if there is enough money in the trust at death to pay the outstanding Medicaid lien/s, all or a portion of the funds left over could go to remainder beneficiaries after repaying the State(s) that provided Medicaid services
If you have questions about helping someone you are working with establish a special needs trust or pooled trust, contact NYSARC Trust Services at (518) 439-8323 or visit test.nysarctrustservices.org. NYSARC Trust Services has administered supplemental needs trusts since 1972, helping thousands of people protect their eligibility for benefits and improve their quality of life.
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Disclaimer: This content is intended for educational purposes only and shall not constitute the provision of professional legal, tax or other advice. NYSARC, Inc. shall have no liability for errors, incorrect information, or inapplicability of information provided to any particular person/reader.