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.
Why do you need an SNT? Medicaid benefits are available to people who 1) have a disability, 2) have very low income, and 3) have very few assets. 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 totaling more than $2000 (there are some items that are exempt from inclusion in the asset determination, like a home and a vehicle used for transportation). If a parent is able to provide some money to make a good life for their child either through gift, inheritance or life insurance, the SNT is the way to do it. Without the SNT, whatever money the parent leaves the child will have to be spent on basic care before government benefits can be used.
How does the SNT work? Money or property 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 or at the trustees discretion. 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 .
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 parents or grandparents for the benefit of the child and funded with their own money and money from any person other than 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. These may also be created if a parent dies and leaves money outright to the child without creating an SNT first. For these trusts, the money is used during the lifetime of the individual in the same way as for a trust created with other people’s money, 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.
If you need to set up a special needs trust for your own child or grandchild, give us a call at 512-804-9934 or 413-203-9358 and we’ll be happy to help you out.