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Why is Informed and Proactive Special Needs Planning Vital?
If you have a loved one with special needs, you are probably intimately familiar with the challenges of navigating the healthcare and long-term care systems. Housing, medication, and medical care costs can quickly surpass most families’ financial resources. Needs-based government benefits programs are often integral to ensuring your family member receives the specialized care or treatments they require. However, these programs, such as Supplemental Security Income (SSI) and Medicaid, are “means-tested” and are only available to individuals below the asset and income limits specified by the government.
Through careful special needs planning, you can make certain your loved one continues to be eligible for critical government benefits while still retaining funds to pay for goods and services that can enhance their lives. With the help of an experienced Minnesota special needs trusts attorney, you can craft a robust plan that provides financial security to your family member. Your special needs plan will not only support your loved one during your lifetime but can give you the peace of mind that they will still be protected and cared for if anything happens to you.
How Can a Special Needs Trust Improve the Standard of Living For Your Loved One Without Endangering Their Benefits?
A trust is a financial arrangement where one or more parties (grantors) can designate assets to be held on behalf of a beneficiary. The assets are placed into the trust, and a trustee is named to oversee the disbursement of the funds per the terms of the trust. A special needs trust is created to hold funds that can then be used to pay for things a special needs individual may require that are not covered by government benefits.
The beneficiary can fund the special needs trust through assets such as inheritances, proceeds from civil lawsuit settlement awards, or life insurance payouts. The trust can also be funded by one or more family members of the beneficiary, such as parents, grandparents, or siblings, who wish to ensure the individual’s long-term care. When funded by someone other than the beneficiary, the trust may also be referred to as a “supplemental needs trust.”
The benefit of placing assets into a trust instead of directly giving them to the special needs individual is that the trust’s funds are not counted as income and will not impact their eligibility for government benefits. The trust can safely hold these assets so they can be used on behalf of the beneficiary for things they may need or want during their lifetime that are not already provided by their benefits programs. The trust will continue to exist until it runs out of funds, the beneficiary passes away, or they are no longer considered a special needs individual. What happens to the remainder of the funds after the trust ends can vary based on how the trust is set up, so it is important to discuss this situation with your legal advisor.
Are There Limits on What a Trust Can Pay For?
A trust set up to care for a loved one with special needs should only be utilized to pay for goods or services not already covered by governmental programs. Payments cannot be made directly to the beneficiary, or the money distributed will be counted as income. Instead, the trustee must pay the third party who supplied the item or service.
Additionally, paying for certain expenses with funds from a supplemental or special needs trust could endanger your loved one’s SSI or Medicaid benefits eligibility. Examples of these disallowed expenses include:
- Rent or mortgage payments
- Property taxes and home insurance
- Utility bills
- Food costs
- Medical expenses already covered by Medicaid
What Items Can Be Paid For By a Trust?
Government benefits only provide basic shelter, food, and medical care to an individual with special needs. While these benefits will ensure that your loved one is cared for, they may provide little room for enrichment or enjoyment. A trust can improve the quality of life for the individual by allowing them to afford certain things their benefits do not cover, such as:
- Trips and outings
- Transportation and vehicle modification expenses
- Extra dental or medical care not covered by insurance
- Therapy services
- Educational costs
- Learning aids and speech devices
- Entertainment, such as books, streaming subscriptions, and games
- Housekeeping services
- Home accessibility aids and modifications
- Companions and home health aides
- Non-food grocery items and household goods
What Happens if Disallowed Expenses Are Paid for With Trust Funds?
The trustee is responsible for overseeing the disbursement of funds from the special needs or supplemental trust. They have a fiduciary duty to ensure the funds are used appropriately and must thoroughly account for the trust’s activities. If a trust consistently pays for disallowed expenses, those payments can be applied to the individual’s income. Because programs such as SSI and Medicaid are means-tested and have very low income thresholds, this increase in income can result in a temporary reduction or loss of benefits.
If this occurs, it is critical to consult with an experienced special needs trusts lawyer as soon as possible to protect the finances and well-being of your loved one. Identifying and correcting the trust’s spending errors can allow the special needs individual to regain their eligibility for full benefits in the future.
How Can Our Law Firm Assist in Your Special Needs Planning?
It can be overwhelming to think of a time when you may not be around to look after your loved one with special needs. But with the help of a compassionate Minnesota estate planning attorney, you can ensure they will always have the care and lifestyle they deserve. Contact Metropolitan Law Group, PA today at 612-448-9653 to schedule a free consultation.
