Loved ones who suffer from mental illness or developmental disability may need specialized care that can be very expensive. An individual who is legally disabled usually receives benefits such as social security income and Medicaid to fund the specialized care. However, they may need additional funds to support their care and needs. Here are frequently asked questions and answers regarding special needs trusts.
Q: My child is disabled and receives social security benefits. If he receives money from family members, will this disqualify him from receiving those benefits?
A: The short answer is yes, if the amount of money is over the asset-threshold. If the assets are over the threshold, additional funding is possible, but the funds may need to be placed in trust in order not to disqualify the individual’s eligibility for benefits. What kind of trust the funds need to be placed in depends on the type of funds, when the funds are received, and whether the disabled person receives public assistance.
Q: What is a special needs trust?
A: A special needs trust is an irrevocable trust that is funded with the assets of the disabled person, who is under the age of 65.
Q: What kind of assets are used to fund a special needs trust?
A: Examples of such assets could be settlement proceeds from a personal injury lawsuit, inheritance from a deceased relative, or gifts from family members. The assets need to exist upon creation of the special needs trust and the assets need to belong to the disabled individual.
Q: What can the trust funds be spent on?
A: The trustee of the special needs trust typically has discretion to use the trust funds for the benefit of the disabled person which may include medical care, education, and recreational activities. This is not an exhaustive list but trustees should be careful when using their discretion.
Q: My child is disabled and receiving Medicaid but a relative wants to give him money for his birthday. Do I need a special needs trust for the gift?
A: No, you need a supplemental benefits trust. A supplemental benefits trust is similar to a special needs trust. However, the key difference is that a supplemental benefits trust is funded by assets of someone other than the disabled person and the disabled person typically receives public assistance. An example would be an inheritance or gift of money from a family member to a disabled relative who receives Medicaid. In contrast to the special needs trust, a supplemental benefits trust is meant to avoid disqualification for government benefits.
Q: Are there any alternatives to a special needs trust or supplemental benefits trust?
A: An Achieving a Better Life Experience (“ABLE”) account is a special bank account for those disabled before the age of 26. Anyone can contribute funds to the ABLE account. However, they are only allowed to contribute up to $19,000 per year. The Social Security Administration will exclude up to $100,000 for Social Security Income purposes if the funds are held in an ABLE account. One thing of note is that if the disabled person is over the age of 18, then you likely will need guardianship over the person in order to open the ABLE account.
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