Many government programs for which disabled individuals may be eligible, such as Supplemental Security Income, Medicaid, subsidized housing, and vocational rehabilitation, require that, in order to receive benefits, the disabled individual must have less than $2,000.00 in assets. Most also require that the individual’s income be less than a certain threshold level.
This means that, in the absence of a Special Needs Trust, many individuals effectively cannot work and cannot accumulate wealth of any sort without being disqualified for the benefits for which they rely. This becomes a significant problem when the individual inherits assets.
The solution to the problem is the creation of a Special Needs Trust, a separate legal entity, to which the disabled individual can transfer his or her income, assets, or gifts without losing eligibility for government benefits?
What’s the catch? Assets in a Special Needs Trust cannot be used on groceries or rent without negatively affecting government benefits. This is because food and living costs are the stated purpose of most of these benefits. However, the assets can be used for basically anything else (e.g. vacations, entertainment, luxury items, etc.) The other catch is that in order to function properly, someone other than the disabled person must be the Trustee of the trust: the person responsible for managing the trust for the disabled person’s benefit.
Some clients ask me whether it would make sense to simply transfer the disabled person’s assets to a loved one, rather create a trust. This is not advisable, because, even if the loved one fully intends to use the transferred assets for the disabled individual’s benefit, and even if that loved one fails to comingle the assets with his or her own, the assets will still be subject to the loved one’s creditors or a bankruptcy or divorce proceeding.
For adults with disabled children, I recommend creating the special needs trust as part of their estate plan. The parents’ trust should leave the disabled child’s share of the inheritance to the disabled child’s trust in order to avoid disqualifying the child for government benefits at the time of the inheritance. However, in order to do this effectively, the Special Needs Trust must already have been created prior to the parents’ death.
Finally, it is advisable that a family with special needs consult often with a team of advisers who can help them navigate the complicated web of government benefits, financial planning, and estate planning.
Please feel free to call or e-mail me with any questions, or to schedule a free consultation:
Kevin O'Flaherty | (630)324-6666 | firstname.lastname@example.org