I thought I would do a little primer on Special Needs Trusts and how they help families plan for the future of their children with disabilities. I'll be doing this in a series of posts, set up in a FAQ format.
What is a Special Needs Trust? A special needs trust (SNT) is a tool that lets families provide money to take care of their adult kids without preventing them from receiving medicaid and services from related government programs that they may need.
Why do we need an SNT? Medicaid benefits are only available to people who 1) have a disability and 2) are very low income. In order to qualify for medicaid, an individual cannot make more than approximately $1300 a month (specific amounts can be found on the social security website) and cannot have assets totalling more than $2000 (there are some items that are exempt from inclusion in the asset determination, like your home and a vehicle used for transportation). If a parent is able to provide some money to make a good life for their child, but not enough to take care of all the child's needs for the rest of their life AND provide some little extra to make life good and fun and more than just an existence, then the SNT is the way to do it. Without the SNT, whatever money the parent leaves the child will have to be used before government benefits can be used.
How does the SNT work? Any money or property that the parent wants to make available to the child is put in the trust. Most families use the trust to hold inheritance money, or they obtain life insurance that will be paid to the trust. A trustee is appointed to spend the money on the child in accordance with the wishes of the parents that have been communicated to the trustee. In order for the SNT to work for preserving medicaid eligibility, the money is to be used only for things that are NOT covered by government benefits, and cannot be paid directly to the child (although small amounts of pocket money are usually fine).
What happens to the money in the SNT if the child dies? There are actually two types of SNT's. The first is created by the parents or others for the benefit of the child. Money left in the trust upon the death of the child is distributed to beneficiaries who were named in the trust itself at the time it was created. Commonly, remaining money is left either to siblings or their children, or to a charity.
The other type of SNT is one that is created with money that actually belongs to the person with the disability. These trusts are common when the disability is the result of an accident and there is a lawsuit or damages paid to the individual. For these trusts, the money is used during the lifetime of the individual in the same way as for a trust created by someone else and the individual may also receive government benefits. But upon death, any money in the trust must first be used to repay the state for benefits received by the individual.
Tomorrow, more FAQ's.
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