Michigan Estate Planning Blog

How Does a Special Needs Trust Work?

 

The most straightforward description of a special needs trust is designed to hold assets for a disabled person without putting benefits received from the government at risk. It’s essential for those planning for a loved one’s future to understand how special needs trusts work, how they are funded and what they can and cannot accomplish. A recent article appearing in Success, “What Is a Special Needs Trust?” provides more insight.

Individuals with disabilities who qualify for financial support through Medicaid or Supplemental Security Income (SSI) must have limited assets and income. They become ineligible for benefits and resources if they exceed their state’s limits. A Special Needs Trust (SNT) keeps assets separate.

An estate planning attorney creates the SNT and names a trustee for the funds. The trust's assets are to be used for housing, transportation, education, health and other expenses not covered by government benefits.

In some cases, the SNT shouldn’t be funded until necessary. Once money or other assets are in the trust, its use is restricted. Parents are advised to ensure that well-meaning grandparents or other family members don’t bequeath assets directly to their disabled loved ones. They have the option of creating an SNT of their own or bequeathing assets to the SNT created by the parent.

There are different kinds of SNTs. A Third-Party Special Needs Trust is created by a parent or other involved person to benefit a disabled child. If any assets are in the trust when the beneficiary of the trust dies, the person who created the trust decides who receives them. They may choose to donate the assets to a charity or a family member.

If an adult becomes disabled later in life, a different type of trust is used: a First Party Special Needs Trust. These trusts are created to own the assets of the disabled individual. For instance, if someone becomes disabled due to a car accident and receives a legal settlement, the money would go into the trust. This allows the disabled person to continue to receive government benefits. When the person dies, the funds spent on their care are paid back to the government through the Medicaid Repayment Program.

Parents or loved ones need several other legal documents to protect themselves and their disabled family members. An estate planning attorney will draft a will to ensure that the parent’s assets pass into the Special Needs Trust. Everyone should have a Power of Attorney and Medical Power of Attorney to protect themselves in case of incapacity.

Checking beneficiary designations is especially important if a family member receives funding from a Special Needs Trust. The person named on the beneficiary designations receives assets upon the owner’s death, which could put their government benefits at risk. All assets must go into the Special Needs Trust to protect their Medicaid eligibility.

Planning for the future is essential for parents of disabled children and adults. It can’t fix everything, but it can relieve some of the worry, knowing that their loved one’s future is protected.

Reference: Success (Oct. 20, 2024) “What Is a Special Needs Trust?”

Impoverished Seniors Rate Nearly Doubles

It’s been fairly clear that medical expenses were becoming an immense financial drain on the elderly. If you are elderly or have an elderly loved one, then this is a given, as supported by recent census data. As reported in Reuters, the number of poor persons hit a record high in 2010, and poverty rates among the elderly have had the steepest gain. In fact, according to the census, a record 49 million Americans (i.e., 16 percent of the population) qualify as impoverished. When it comes to the elderly, the poverty level jumped to 15.9 percent, or roughly 1 in 6, from the previous year’s nine percent. It’s true that the census study and methods have become a political flashpoint. However, the new analysis takes a broader look at life and includes government benefits. Previous studies used older methods that failed to account for how people maintained their standard of living. Politics aside, it’s still a sobering data. If government benefits have become that much more of the equation, then it goes a long way towards showing what’s at stake in the present and upcoming political storms.

Reference: Reuters (November 7, 2011) “New Census data raise number of poor to 49 million”