Understanding Special Needs Trusts

By October 14, 2008Uncategorized

What is a Special Needs Trust?
A Special Needs Trust (SNT) is a legal arrangement where property is managed by a person or persons for the benefit of a disabled person. SNTs are special because the property is available to the disabled person, but it is not counted as a resource when the disabled person tries to qualify for public benefits like Medicaid/ALTCS and Supplemental Security Income (SSI). SNTs are sometimes referred to as supplemental needs trusts or special treatment trusts.

How does a SNT work?
A SNT is created when a person creates the trust document and gives property to the trust. The property can be real estate (i.e. a house), money, a car, furniture, or any other personal property.
The person who puts the property in the trust is called the trustor, settler, or grantor; the person who manages the property is called the trustee; and the disabled person who benefits from the property is called the beneficiary.

Once the SNT contains property, the trustee uses the property to supplement the needs of the disabled person and enhance that person’s quality of life. Medicaid and SSI may only cover some of the person’s needs, and, when this happens, the SNT can help with what is left over. The property from a SNT can be used for a house, a vehicle, general living expenses, entertainment, and even travel expenses. The SNT is intended to supplement, not replace, public benefits. Below are a couple examples of when SNTs are useful:

Example 1: Leaving Money to the Disabled Heir
A SNT can be particularly helpful when a grandparent wants to leave money or property in a will to a disabled child or grandchild. If the grandparent were to leave the property directly to the person, the property would be a countable resource, and the person would no longer qualify for public benefits. The person would have to spend all the money and/or sell the property before they could again qualify for public benefits. Furthermore, there is usually a gap of a couple of months between the time that person spends the money and the time they are again approved to receive benefits.

A better choice is for the grandparent to set up a SNT for the disabled child or grandchild and to leave the money or property to the SNT. The SNT can also be named the beneficiary of life insurance policy, and receive the money from it. The disabled person will still be eligible for Medicaid and SSI, and the trustee will be able to provide additional support to the individual benefiting from the SNT.

Example 2: The Car-Accident Victim
A SNT can also be used when a person is permanently disabled in an accident and that person receives a settlement or insurance money to compensate for the injury. Again, if the person directly receives the money and it is more than $2,000, the person will be disqualified from receiving public benefits.

The settlement money can be put into a SNT, and it will not be counted as the disabled person’s assets. The car-accident victim remains eligible for SSI particularly Medicaid, which will be important if the person has expensive, on-going medical costs.

Different Types of SNTs
There are two primary types of SNTs. They apply to different situations and have different requirements and restrictions.

Third-Party-Funded SNT
A Third-Party-Funded SNT receives its property from someone other than the disabled person. In other words, the beneficiary is not the grantor and hence, these SNTs are also called Non-Grantor-Funded SNTs. The grandparent in Example 1 would create this type of SNT because the grandparent is putting the property in the trust for another person, the disabled child or grandchild.

Third-Party-Funded SNTs have relatively few restrictions. Basically, the beneficiary must be disabled, the property must not come from the disabled person, and the trust property must be used to supplement, not replace, public benefits. When the person dies, the property can be given to other people like the person’s children.

This type of SNT can be used anytime a person wants to give money to a disabled person and not affect public benefits.

Self-Funded SNT
A Self-Funded SNT receives its property from the intended beneficiary, the disabled person. In other words, the beneficiary is the grantor; and hence, these SNTs are also called Grantor-Funded SNTs. They are also called (d)(4)(A) trusts. The accident victim in Example 2 would create this type of SNT because the settlement money “belongs” to the disabled person, and the disabled person’s money is funding the trust.

Self-Funded SNTs have more restrictions than Third-Party-Funded SNTs. The beneficiary must be disabled and under age 65 at the time the SNT is created and funded, the property must come from the disabled person, and the trust property must be used to supplement, not replace, public benefits. When the person dies, Medicaid must be paid for the services rendered to the disabled person before the property is given to anyone else. If there is property left over, then it can be given to other individuals like the person’s children. Additionally, the SNT must actually be created by a parent, grandparent, guardian, or a court, and then it is funded by the disabled person.

This type of SNT can be used when the disabled person has property or is entitled to property like a settlement, but wants to remain qualified for public benefits.

Important to Note
Medicaid and SSI are public benefit programs designed to help disabled individuals. Medicaid provides comprehensive medical benefits, and SSI provides monthly income intended to pay for food and shelter. In an age of ever increasing medical costs, Medicaid is particularly valuable.
Both of these programs are means-tested programs, which means a person must meet certain income and resource requirements to qualify to receive benefits. Under the current requirements, the person must make less than approximately $1,900 per month and have less than $2,000 in countable assets. The point of SNTs is that the trust property is not a countable asset, so public benefits are still available.

Programs like Medicare and Social Security Disability Insurance (SSDI) are not means-tested; and therefore, SNTs are not needed to preserve those benefits.

“Fall” into an ALTCS 101
JacksonWhite Elder Law is proud to offer our free ALTCS 101 trainings to the health care community – now with dates scheduled for 2009!! Even if you’ve attended in the past, this training will keep you up-to-date with the latest in ALTCS rules and eligibility. You’ll walk away with a better understanding of how the program works and the options Arizona seniors have when paying for long-term health care. The JacksonWhite Elder Law team also provides free ALTCS trainings and in-services for health care facilities and organization. For more information or to schedule an in-service, please visit our Web site.

Tuesday, October 21, 2008
Northland, Hospice
425 N. Switzer Canyon Dr., Suite A
Flagstaff, AZ 86001
1 – 3 p.m.

Thursday, October 23, 2008
The Court at Peoria
9296 W. Union Hills Dr.
Peoria, AZ 85382
11 a.m. – 1:30 p.m.
*Lunch will be served

Tuesday, November 4, 2008
JacksonWhite Mesa Office
40 N. Center St., Suite 200
Mesa, AZ 85201
9:30 – 11:30 a.m.

Thursday, January 22, 2009
Amethyst Gardens
18170 North 91st Avenue
Peoria, Arizona 85382
11 a.m. – 1:30 p.m.
*Lunch will be served

Thursday, February 5, 2009
JacksonWhite Mesa Office
40 North Center Street
Suite 200
Mesa, Arizona 85201
(480) 464-1111
1 – 3 p.m.

Seats for all trainings are limited. Please RSVP to Julie Allen at (480) 464-1111.
Dispelling ALTCS Myths
Myth: I must spend down everything to $2,000 if I want to be on ALTCS.
Truth: There are many ALTCS rules dealing with assets. It is true that a single person must spend down to $2,000 but when the client is married these rules drastically change. Currently, rules allow a well spouse to keep a maximum of $104,440. Correct planning can ensure the well spouse keep their asset and still get the ill spouse on the program to pay for care. Why can this be done? The federal government recognized that is it not okay to impoverish the well spouse to care for the ill spouse. It’s always best to consult an Elder Law Attorney experienced in Medicaid planning before spending down any asset to get on the ALTCS program.

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www.arizonaseniorlaw.com/blog
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