Special Needs Trusts – Protection for Someone Who Can’t Protect Themself

WHAT IS A SPECIAL NEEDS TRUST AND WHY WOULD I NEED ONE?

*This is the first in a series of blog posts to give the general public an overview of planning issues for people with children with disabilities.  This is general information, and not specific to any state.  I am licensed in NY and NJ, and cannot offer any advice to persons outside of those jurisdictions.  If you have questions that are specific to your state, please contact your local bar association for a referral to an attorney near you.  This is not a substitute for a consultation with an attorney, but will hopefully serve as a good guide to structure your questions to the attorney you will get to help you.

WHAT IS A SPECIAL NEEDS TRUST??

A Special Needs Trust or a Supplemental Needs Trust is a Trust designed to hold assets that would otherwise disqualify a disabled person from receiving benefits under Medicaid, SSI or other public programs.  Medicaid is an asset/income based system and if a potential beneficiary has more than $2,000 (or your state’s maximum) in “countable assets,” that individual could be disqualified from receiving Medicaid benefits.

Back prior to 1993, it was far easier to restructure assets to avoid disqualification for Medicaid for seniors.  There was a far shorter “look back” period on transfers to irrevocable trusts and people could disclaim (renounce) inheritances if it would help qualify for Medicaid.  In fact, individuals could create “special needs trusts” for themselves.  That option is now gone.  Why?  Because the Omnibus Budget Reconciliation Act of 1993 (“OBRA ’93”) eliminated those options.  What was created was the options for special needs trusts under 42 U.S.C. §1396p(d)(4).

These trusts are

  1. Established for the benefit of a disabled person by a
    1. Parent
    2. Grandparent
    3. Guardian
    4. Court
  2. Irrevocable

In many cases there is a provision to repay Medicaid for medical benefits the disabled person receives.  There are often provisions that the disabled person can never control the trust.  Trusts in each state will vary depending on that state’s regulations.

WHY WOULD I NEED A SPECIAL NEEDS TRUST

Chances are you are reading this because you already have an inkling that you will need a Special Needs Trust for your child.  Why:  your child has a disability within the meaning of the law and will likely require Medicaid benefits or other social services.  If you are already in the disabilities system and receiving services like Early Intervention, your case worker may have already suggested this.

You, yourself, may be disabled and now have a need for Medicaid.  If that is the case, if you have assets, those assets may be required to be transferred to a Special Needs Trust to qualify you for Medicaid benefits.

HOW DO I SET UP SUCH A TRUST

Drafting a trust is not a task for the layperson.  In every state the regulations regarding trusts and ESPECIALLY special needs trusts differ.  States are very particular about certain language and if the trust does not conform – the trust could be rejected and the disabled person could lose out on significant public benefits.  Are there forms out there on the internet – sure.  Should you, as the parent or guardian of a disabled person or a disabled person yourself use those forms?  The answer, from my perspective, is a vehement “NO!!!”

The only way that a special needs trust should be set up is after a consultation with an attorney licensed in your area.  The attorney will know the “magic words” that the Trust must contain to protect the assets you want to protect, or, if you plan on funding the trust with inheritance and life insurance, will be able to set up a complete plan to direct inheritance the way you want it to go and to protect your child/loved one.