Unpacking Special Needs Trusts (SNTs)
A Special Needs Trust (SNT) is a legal arrangement designed to preserve eligibility for government benefits while enhancing the quality of life for a beneficiary with special needs. If a person with special needs receives a direct inheritance or funds from a regular trust, those assets may be deemed countable resources by government agencies, potentially disqualifying them from essential benefits like Supplemental Security Income (SSI) or Medicaid.
An SNT avoids this issue by holding the funds in a way that doesn’t count as the beneficiary’s direct asset. The trust terms dictate that the money be used for expenses that improve the individual’s life such as education, therapy, or recreational activities without affecting their eligibility for benefits.
Who Can Benefit From A SNT
SNTs are particularly valuable for individuals who rely on means-based government benefits like Supplemental Security Income or Medi-Cal. These benefits have strict eligibility criteria in place, including income and asset limits. For example, SSI recipients generally cannot have more than $2,000 in countable resources as individuals or $3,000 as a couple. Inheritances or other financial windfalls can jeopardize their eligibility if not handled properly.
An SNT ensures that these individuals can receive financial support from an inheritance or gift without surpassing the resource thresholds that would disqualify them. The trust allows funds to be used for specific purposes that enhance their quality of life such as education, medical expenses, or personal care while keeping their eligibility for government benefits intact.
Rebecca Sommer, founder of The Law Office of Rebecca Sommer in California, specializes in estate planning and has extensive experience helping families navigate the complexities of Special Needs Trusts. Her deep understanding of government benefit regulations and the nuanced requirements of California law means she can successfully guide you in protecting your loved ones' financial security and quality of life, as she has done for so many others.
If you’re considering an SNT, let Rebecca provide the clarity and confidence you need schedule a free consultation today to safeguard your family’s future.
First-Party Versus Third-Party SNTs
A first-party SNT is funded with the beneficiary’s own assets. This often occurs when an individual with special needs receives money from a settlement, inheritance, or other sources. Maintaining eligibility for means-tested government benefits like SSI or Medicaid requires placing funds directly into a first-party SNT, often under court supervision. This preserves eligibility, which is critical for so many but fails to free the trust from being subject to payback provisions. This means that Medicaid can claim reimbursement for expenses paid on the beneficiary’s behalf after their passing.
A third-party SNT, on the other hand, is established and funded by someone other than the beneficiary, such as parents, grandparents, or friends. Unlike a first-party trust, these funds are not subject to Medicaid recovery, provided the trust is properly structured. This allows the funds to remain protected and used exclusively for the beneficiary’s supplemental needs.
Common Challenges Associated With Setting Up An SNT
Establishing a Special Needs Trust can be complex due to the complicated nature of many of the requirements needed to ensure compliance with government benefits regulations. One key challenge is ensuring the trust terms meet the Social Security Administration’s (SSA) standards.
In states like California, additional rules apply to ensure the SNT qualifies and achieves its intended purpose. Critical elements include properly assigning a trustee, determining the revocability of the trust, and precisely defining how the trust assets are to be spent. Mistakes in these areas can lead to the trust failing to qualify as an SNT, jeopardizing the beneficiary’s eligibility for government benefits.
Another challenge is understanding how to administer the trust effectively. Trustees must follow strict guidelines on how funds are distributed to ensure the SSA does not classify distributions as income or assets for the beneficiary, which could result in a temporary loss of benefits.
Careful planning, compliance with regulations, and proper administration are vital to ensuring your SNT functions as intended and maximizes the benefits for your loved one.
Still Have Questions? Ready To Get Started?
For more information on Special Needs Trusts, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (657) 571-1241 today.
Rebecca Sommer, founder of The Law Office of Rebecca Sommer in California, specializes in estate planning and has extensive experience helping families navigate the complexities of Special Needs Trusts. Her deep understanding of government benefit regulations and the nuanced requirements of California law means she can successfully guide you in protecting your loved ones' financial security and quality of life, as she has done for so many others.
If you’re considering an SNT, let Rebecca provide the clarity and confidence you need schedule a free consultation today to safeguard your family’s future.
