A Special Needs Trust can be set up during the life of the Grantor, or on the Grantor’s death (testamentary). A beneficiary who receives an inheritance may receive it in kind, either directly or indirectly through a discretionary trust (a common form of trust planning for beneficiaries). In both instances, the inheritance would possibly disqualify the beneficiary from government benefits, or would make the beneficiary ineligible for future benefits until he or she spends all the money.
Examples of government benefits include Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), and Medicaid (healthcare coverage for people with relatively little income and/or assets). In the case of SSI and Medicaid, benefits are “need based,” and any available assets to the beneficiary would be considered in determining eligibility.
To avoid inadvertent disqualification, it is possible to transfer assets into a “special needs trust,” sometimes called “supplemental needs trust” (“SNT”) for the benefit of the individual receiving or seeking government benefits. If drafted and administered properly, any assets transferred into the SNT, and any income generated by the SNT, will not be counted against the beneficiary’s eligibility to receive government benefits.
The reason this SNT works, is that the trust will only pay for the beneficiary’s “special needs.” And “special needs” is defined as anything that the government won’t pay for.
In other words, not only could the individual qualify for government benefits, but he or she would also have an additional resource that could increase his or her standard of living far above that offered by the government.
A Grandmother wants to set aside some money either during her lifetime or at the time of her passing for the benefit of her grandson who is disabled and receiving government benefits.
If she puts money into an account for the child or if she puts money in a discretionary trust for the child, the child will be denied or removed from government benefits or will not be eligible to receive benefits until a spend down occurs.
However, if Grandmother were to instead establish a SNT to hold that money while she is living, for the benefit of Grandson, or if this SNT is established as a part of her living trust or will to be funded at her passing, the funds are not countable resources when it comes to determining eligibility for the benefits.
Now, if grandson wants to visit family members at Christmas, and the government won’t pay for his airline tickets, the special needs trust could pay for the tickets instead. If grandson needs cosmetic dentistry, and the government won’t pay for it, the special needs trust could pay for it instead.
In effect, the special needs trust can provide the grandson a standard of living higher than what the government would otherwise provide.
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