By Ashley A. Jolissaint, Legal Assistance Attorney
Special Needs Trusts
If you have a disabled loved one and want to leave an inheritance to them, you will need to be careful not to jeopardize their Supplemental Security Income and Medicaid benefits. While a disabled beneficiary can own property such as a house, a car, furniture and personal clothing, cash in a personal checking or savings account will disqualify a beneficiary from receiving SSI and Medicaid benefits. Thus, you may want to consider establishing a Special Needs or Supplemental Needs Trust (SNT).
A Special Needs Trust allows a disabled beneficiary to receive property and/or money without interfering with eligibility for SSI and Medicaid. There are two types of Special Needs Trusts: first party trusts and third party trusts.
First Party Trust
A first party trust is typically established by a disabled beneficiary when he or she inherits money or property or after a court settlement. First party trusts are useful for beneficiaries who own property prior to the onset of their disability and later need to qualify for public benefits such as Supplemental Security Income and Medicaid benefits which typically have asset limits.
Third Party Trust
Trusts that are funded by someone other than the beneficiary is a third party trust. Typically, a third party trust is created and funded by parents, friends, or family of a disabled individual. There are a few variations of third-party trusts, including standalone trusts, testamentary trusts, and third party pooled trusts.
First, a standalone trust is a trust that is typically created when there are multiple donors who wish to fund the Special Needs Trust. A standalone trust is created and exists during the lifetime of the creator and may survive the death of the creator. The creator may then contribute additional post-mortem gifts after his or her death.
A Testamentary trust is third-party trust created and funded by someone other than the beneficiary and an independent person is named as trustee. Typically, the trust creator chooses someone to serve as trustee and may also choose an alternate trustee to serve if the first trustee is unavailable. The trustee controls any trust property and spends trust money for the benefit of the beneficiary. Trust funds may be spent on personal care attendants, vacations, furniture, medical and dental expenses, education, recreation, vehicles, and physical rehabilitation.
Pooled trusts can be a great option for families with limited resources or with disabled dependents whose needs are substantial. A pooled trust allows for assets to be combined for the benefit of multiple beneficiaries.
The assets are pooled for investment purposes and managed by a nonprofit organization. With pooled trusts, beneficiaries maintain their own individual accounts. Additionally, in Maryland, beneficiaries who are over the age of sixty-five (65), may transfer assets into an approved pooled trust without Medicaid transfer penalties.
A notable difference between third-party special needs trusts and first-party trusts is the control of the assets after the beneficiary’s death. After the beneficiary dies, a third party trust is not required to use the remaining assets to reimburse any state for Medicaid benefits received by the beneficiary.
A Special Note
When creating a Special Needs Trust, choose the trustee carefully, as the trustee will have sole discretion regarding distribution of the trust assets. In order to maintain SSI and Medicaid benefits, a trustee must have absolute discretion over distributions. If a beneficiary can legally compel distributions from the trust, then the trust will be viewed as available assets, jeopardizing a disabled beneficiary’s access to SSI and Medicaid benefits.
If you are disabled or have a disabled loved one, you may want to consider a Special Needs or Supplemental Needs Trust (SNT) in order to improve quality of life without jeopardizing access to SSI and Medicaid. For more information about Special Needs Trusts, you can review Maryland Code § 14.5-1002 - Special needs trust or supplemental needs trust. You can also consult with an attorney or visit various online nonprofit organizations such as the First Maryland Disability Trust.
The laws and regulations for estate planning vary from state to state so it is important to consult with an attorney before having documents created. To request an attorney consultation, please contact the Fort Meade Legal Assistance Division: 301-677-9504/9536.