We all know of at least one person living with some form of a disability. For many people, that someone is a child or loved one.
It is very important to be careful and plan accordingly should you wish to leave money or property to a person with a disability. Oftentimes, and potentially unbeknownst to you, your loved one may be receiving government assistance, such as: Medicaid, Supplemental Security Income, Federally Assisted Housing, Supplemental Nutritional Assistance Program (“SNAP”), etc. Leaving money to family members who receive benefits from any of the above government programs (among others), COULD affect their eligibility.
As such, it is imperative that we all arm ourselves with the knowledge to best plan for these situations. Special Needs Trusts are one of many tools that are designed to protect your loved one’s eligibility for public benefits. Because regulations are always changing, and there is no “one size fits all” solution to planning for public benefits, it is crucial that you seek out professional advice should you wish to leave assets to a disabled child or loved one.
There are three main types of Special Needs Trusts:
- A First-Party Special Needs Trust is most often established under 42 U.S.C. §1396p(d)(4)(A), and is referred to as a “(d)(4)(A) Trust.” This type of trust is established with the assets of the person with a disability. There are specific state and federal criteria that must be followed, and if drafted incorrectly, will affect eligibility. For example, these trusts must have a payback provision, meaning that on the death of the individual, assets remaining in the trust must be used to pay back to the state for benefits paid on his or her behalf.
- A Third-Party Special Needs Trust is created with the assets of another individual. These trusts are funded with the assets of a third party for the benefit of the individual. Typically, you see these trusts established by the parents of the beneficiary. Having a third-party trust available allows family members to provide for the beneficiary in their respective wills without leaving money outright. Unlike the First-Party Trust, traditional Third-Part Trusts do not have a payback provision. The exception to this rule is when a Third-Party trust is established so that the grantor can obtain Medicaid benefits him or herself. This type of trust referred to as a Sole Benefit Trust has its own state and federal criteria that must be followed.
- A Pooled Trust is one that is administered by a nonprofit organization, such as PLAN/NJ. Pooled Trusts are a way to provide the advantages of a Special Needs Trust without having to actually establish a separate trust. Assets are placed in sub-accounts within the pooled trust to be used for the named individual but pooled together for investment purposes. Pooled Trusts are generally preferred when the amount going into the trust is not large.
At Hynes Law Group, we can assist you to navigate the special needs landscape and determine whether or not a Special Needs Trust is appropriate for you or your loved one. To Schedule a free 15-20 minute consult to determine if a Special Needs Trust is appropriate for you or a loved one, please call my office at 908-514-8008.
-Jesse R. Hynes, Esq.