Third in a Three-Part Series

By Laurie Hanson, Esq., Special Needs Alliance

There are an estimated 600,000-700,000 adults with intellectual and developmental disabilities (IDD) in the United States who are living with aging family members and with no plan in place for their future. Below, our colleagues from the Special Needs Alliance emphasize the importance of planning and trusts.

With the launch of the Center for Future Planning, The Arc is shining a spotlight on the need to encourage and support families to create person-centered future plans. The Center provides practical assistance and resources on future planning items such as assisting the individual with daily and major life decision-making; housing and residential options and supports; financial planning; special needs trusts; and employment and other daily activities.

In the first installment of our series, we discussed the importance of planning for a person living with a disability. In our second installment, we discussed how the third party special needs trust (SNT) is currently the best tool for parents to provide for a person with a disability at the parents’ death. We defined basic trust terms, the importance of choosing a trustee wisely, how much money should be placed into the trust, and more. In this third installment, we will be discussing the first party SNT.

What is an SNT? A trust is a legal arrangement by which a person or financial institution, called the “trustee,” holds legal title and manages money for the benefit of a person called the “beneficiary.” An SNT, if established and administered correctly, allows a person with a disability to place his or her own money in the trust and remain eligible for Supplemental Security Income (SSI) benefits and/or Medicaid. This only works if the SNT:

• is established by a parent, grandparent, guardian, or court
  • for the benefit of a person who is living with a disability as defined by the Social Security Administration;
  • for a person who is under age 65;
  • using assets belonging to the person with a disability; and
• is irrevocable; and
• has a provision stating that at the death of the beneficiary, any remaining trust assets must be distributed first to the state as repayment for any Medicaid received by the beneficiary.

When is an SNT used? Individuals living with disabilities who depend on SSI and/or Medicaid to meet basic needs may have only limited assets – for instance, in most states, a person on SSI and Medicaid may have only $2,000 in cash and other “countable assets”. If a person inherits money or receives money from a lawsuit, he or she will no longer be eligible until the assets are reduced to the eligibility standard (e.g., $2,000 for the SSI program.). The SSI and Medicaid programs treat an inheritance or personal injury settlement as income in the month of receipt and an asset thereafter. Thus, upon receipt of the inheritance, the individual must either go off the program or reduce assets by the month after the month of receipt in order to remain eligible. To reduce assets without affecting eligibility, the individual may:

• purchase assets that are not counted toward the $2,000 eligibility standard, such as a home, household goods, personal items like a computer or bicycle, an automobile, or a burial plot; and/or
• prepay funeral expenses in a way that qualifies for an MA and/or SSI exclusion; and/or
• fund an ABLE account if the disability was diagnosed before age 26 and the amount to be reduced is $14,000 or less – when ABLE accounts become available in his/her state of residence; and/or
• place the assets in a special needs trust; and/or
• place the assets in a special needs pooled trust sub-account.

Here are some examples:

Beth Jensen is a young adult living with a developmental disability who has a guardian. She lives in a group home and her support services are paid by a Medicaid waiver. She also receives SSI. Her father died without doing any planning (see installments 1 and 2!) and so she is about to inherit $300,000. Beth qualifies to be a beneficiary of an SNT because she is under age 65 and she has a disability according to SSA criteria, as evidenced by her receipt of SSI. The trust can be established by her guardian, and the inherited money can be transferred to the trust. She will remain eligible for SSI and MA as long as the trustee distributes the funds for Beth’s sole benefit. Any money left in the SNT at her death will be paid back to the state up to the amount of Medicaid benefits paid on Beth’s behalf.

Beth’s guardian could also establish a special needs pooled trust sub-account for Beth’s benefit. A pooled SNT is a master trust established by a non-profit corporation to hold assets for the benefit of a person with a disability. Here is a link to pooled trusts run by, or affiliated with, chapters of The Arc. The funds are pooled for investment purposes, but a sub-account is maintained for each beneficiary. A sub-account can be established by the individual with the disability, a parent, grandparent, guardian, or court. The trustee makes distributions from Beth’s sub-account for her sole benefit. At Beth’s death, a portion of the remaining assets may be retained by the pooled trust for trust administration purposes or to support other people with disabilities. Beyond what remains with the pooled trust, remaining assets are to be paid back to the state to reimburse the state for Medicaid benefits paid on Beth’s behalf. If any funds remain after payment to the state, funds may be paid to a remainder beneficiary named when the account was established. . Just how much money the pooled trust retains, and how much must be paid to the government, varies from state to state.

What can the trustee buy for the beneficiary with trust money? Guidelines are broad and, in general, the trustee may pay for goods and services that enhance the beneficiary’s quality of life. Examples of valid expenditures include extra therapy or personal assistance services, books, consumer electronics, musical instruments, travel and education, recreation and entertainment, pets, and some home maintenance, such as gardening and snow removal. In most cases, the trustee cannot give the beneficiary cash. If the beneficiary is on SSI, payment for food and/or shelter will reduce the beneficiary’s income by up to one third. Ensuring that the distributions do not jeopardize the beneficiary’s benefits is an important part of the trustee’s job.

SNTs can be complicated and state Medicaid agency requirements vary, so families should work with professionals who are experienced with the nuances of changing government regulations. The SNT can be a wonderful tool for those who rely on public benefits for basic needs to enhance their quality of life.

The Special Needs Alliance (SNA) is a national non-profit comprised of attorneys who assist individuals with special needs, their families and the professionals who serve them. SNA is partnering with The Arc to provide educational resources, build public awareness, and advocate for policies on behalf of people with intellectual/developmental disabilities and their families. This article does not constitute legal advice, and individuals should consult legal counsel concerning their specific situations.