SPECIAL NEEDS TRUSTS FOR DISABLED FAMILY MEMBERS

There are two types of special needs trusts (“SNTs”)¹. A third-party SNT is by far the most common type of SNT, and this article presents a general overview of such trusts. A third-party SNT is a specialized trust that allows a family to provide support to a disabled child or other family member without jeopardizing the disabled person from qualifying for public assistance. These trusts are established and funded by someone other than the disabled person–typically, parents, grandparents, or siblings.² Such trusts generally are funded upon the death of the donor, and the trust typically is drafted as part of a will or a living trust, although a stand-alone trust document can be drafted and structured to receive gifts from several donors.

If properly structured, the SNT will allow the disabled family member to inherit money without being disqualified from various federal and state public benefit programs. Assets that can be owned by the SNT include real property, personal property, cash, stocks, and bonds. Moreover, the SNT can be named as a beneficiary of life insurance policies. The trustee of the SNT will have full discretion to determine how to best utilize the funds in the trust to supplement the basic benefits provided from government public assistance agencies, thus enhancing the beneficiary’s quality of life without jeopardizing the receipt of valuable public assistance. This specialized trust is drafted so that the inherited funds will not be considered as belonging to the beneficiary in determining the beneficiary’s eligibility for “needs-based” or “means-tested” public benefits; rather, the trust itself holds title to the property for the benefit of the disabled beneficiary. “Needs-based” public benefits include SSI (supplemental security income), Medi-Cal/Medicaid, IHSS (in-home support services), and Section 8 housing. The SNT is not necessary to protect regular social security, such as SSA and SSDI.

“Special needs” are defined broadly and include anything necessary to maintain the beneficiary’s health, safety, and well-being when such benefits are not provided by public assistance agencies. These needs may include rehabilitation and training programs, educational expenses, entertainment, recreation, social outings, vacations, home repairs and improvements (including modifications for handicapped use), cleaning and laundry services, telephone, television, and internet services, audio, video, computer, and adaptive equipment, companion services and home health aides, personal hygiene (hair and nail care), furniture, clothing, bedding, toys, musical instruments, cigarettes, transportation expenses (including gas, purchase of a car or van, modification, insurance, and maintenance costs), legal advice, burial expenses, and other items that will enhance the beneficiary’s quality of life. Even certain medical needs can be met by the SNT, such as annual check ups, newer and more effective medications or more sophisticated medical treatments and procedures that are not covered under Medi-Cal/Medicaid, dental expenses, physical therapy, and vision care.³ Food (including restaurant meals) and shelter (including rent, purchase of a home, property insurance, property taxes, and utilities) also can be paid from the SNT, but some governmental benefits may be reduced if the funds are used in this way; however, the beneficiary’s quality of life can be improved greatly by additional funds, so it is best to give the trustee the discretion to supplant public aid where appropriate.⁴

Proper estate planning with the SNT will balance family resources with those available from public agencies, thus making a significant difference in a disabled person’s quality of life. The SNT also can alleviate the caretaking responsibilities of the disabled person’s other family members, such as siblings. If you are considering the SNT as a way of supplementing the basic needs of a disabled family member without disqualifying that person from public assistance, it is essential to contact an attorney with expertise in this area, as SNTs are highly sophisticated and receive a high level of scrutiny from Social Security and Medi-Cal/Medicaid.

The Law Office of Patricia L. Andel can properly draft SNTs for your disabled loved ones. Contact us for more information.⁵

1. These are also known as “supplemental needs” trusts. [↩]
2. A first-party “self-settled” SNT is established by a disabled individual (who is under the age of 65) with that individual’s own funds for that individual’s own benefits. The typical scenario for this type of SNT is where the disabled individual has received a settlement or jury award from a personal injury, medical malpractice, or other lawsuit, or has received an inheritance. The key difference between first-party and third-party SNTs is that with a first-party SNT, any amounts remaining in the trust after the disabled beneficiary’s death must be used to reimburse Medi-Cal/Medicaid for any medical assistance that has been paid by that agency on behalf of the disabled individual. No such requirement exists for third-party SNTs. [↩]
3. This is not an all-inclusive list, but offered as guidance only. [↩]
4. The SNT trustee should not give the beneficiary over $20/month in cash, as SSI benefits will be reduced. [↩]
5. This article is intended to provide a general overview of the related law, which is subject to change. The information contained herein is not to be construed as “legal advice.” If legal advice is required, you should seek the services of a competent estate planning and/or family law attorney. [↩]