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Special needs trusts (SNTs), also called “supplemental needs trusts,” benefit children or other family members with disabilities that require extended-term care or that prevent them from supporting themselves. This trust type can provide peace of mind that your loved one’s quality of life will be preserved while not disqualifying him or her from Medicaid or Supplemental Security Income (SSI) benefits.
Preserve Government Benefits
Medicaid and SSI pay for basic medical care, food, clothing, and shelter. To qualify for these benefits, however, the individual’s resources must be limited to no more than $2,000 in “countable assets.” Generally, every asset is countable with a few exceptions, including among other things a principal residence, a car, and a small amount of life insurance.
An SNT is an irrevocable trust designed to supplement, rather than replace, government assistance. To preserve eligibility for government benefits, the beneficiary can’t have access to the funds and the trust must be prohibited from providing for the beneficiary’s support. That means it can’t be used to pay for medical care, food, clothing, shelter or anything else covered by Medicaid or SSI, such as the basic medical care provided by those programs.
Pay for Supplemental Expenses
What SNTs can be used for is paying for virtually anything government benefits don’t cover, such as unreimbursed medical expenses, education and training, transportation, insurance, and modifications to the beneficiary’s home. It can also pay for such quality-of-life needs as travel and entertainment.
It is important to remember that the trust must not pay any money directly to the beneficiary. Rather, the funds should be distributed directly — on behalf of the beneficiary — to the third parties that provide the goods and services to the beneficiary.
Alert Family and Friends
To ensure an SNT’s terms aren’t broken, notify family members and friends to make gifts or donations directly to the trust and not to the loved one with special needs.
If you are considering an SNT for a loved one and have questions, contact me at SDitman@berdonllp.com or your Berdon advisor.
Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, New York Accountants, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.