SNT can be a Vital Tool for Families

July 5, 2023

A special needs trust, or SNT, can be a vital tool for families. It is an important part of planning for the financial security and lifestyle of a family member with special needs. A special needs trust can allow the trust’s beneficiary to receive financial support from the family for supplemental needs without losing public benefits, such as SSI (Supplemental Security Income) and Medicaid. A recent article from The Westerly Sun, “Special needs trust could ease families’ stress,” explains how this works.

A parent typically has the special needs trust created. As the grantor, the parent establishes the trust and names a trustee who will be responsible for managing the trust. The trust may be funded with gifts throughout the parent’s lifetime or from other sources, such as a court settlement or an inheritance.

Life insurance proceeds are often used as the funding mechanism. The trust purchases a life insurance policy on the life of one or both parents of a special needs individual. Government benefits are protected as long as the trust is named the policy beneficiary.

The role of a trustee is important in a special needs trust. They must manage the funds within the trust and ensure that they are only used to supplement SSI and Medicaid, the two government programs that typically cover the costs of housing, food, and medical care. The special needs trust can be used for other qualified expenses, including transportation, travel, education, entertainment, professional services, and personal items.

The parent could serve as a trustee, or a trusted friend or relative may be named. Whoever is chosen as the trustee should be familiar with the family and the needs of the family member with disabilities. You also want to name a person who is competent at managing finances and can be trusted to stay current regarding SSI and Medicaid regulations.

Another option is to hire a professional trust company to manage the special needs trust. This type of company is experienced in both asset management and government regulations and would provide parents with strict recordkeeping of all financial transactions associated with the trust.

Parents should also be familiar with areas of concern about special needs trusts. The trustee controls how and when funds are distributed, which can frustrate beneficiaries if requests for funds are denied.

While third-party special needs trusts are funded by someone other than the beneficiary, the beneficiary’s own assets fund first-party special needs trusts. The trust must pay back Medicaid for money used for the beneficiary after the beneficiary’s death. This repayment could deplete the trust, depriving secondary beneficiaries of any funds they might otherwise receive. Third-party trusts do not require Medicaid repayment.

An SNT can be a vital tool for families, but only if it is properly structured. Speak with an experienced estate planning attorney before establishing a special needs trust to be sure that this is the right solution for your family’s situation. If you would like to learn more about special needs and elder law planning, please visit our previous posts.

Reference: The Westerly Sun (June 10, 2023) “Special needs trust could ease families’ stress”

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ABLE Accounts are a lifesaver for Special Needs Children

February 16, 2023

For many families, a plan for the future includes an Achieving a Better Life Experience, or ABLE, account to allow those with disabilities to set aside extra money without interfering with their federal aid. ABLE accounts are a lifesaver for special needs children. All but four states—Idaho, North Dakota, South Dakota, and Wisconsin—provide ABLE accounts, according to a recent article titled “ABLE Accounts Give Help For People with Disabilities” from AARP.

Other states, including California and Pennsylvania, allow people from other states to invest in their ABLE program.

Account owners are permitted to invest their money and shield earnings from taxes. Withdrawals are tax-free, as long as the money is used for approved expenses related to the account owner’s condition. Much or all of the money in an ABLE account does not count against asset limits which impact eligibility for safety-net programs, like Medicaid and Supplemental Security Income (SSI).

To be eligible for an ABLE account, the person must have a disability which began by the time they reached age 26 and in most cases, be receiving SSI or Social Security Disability Insurance (SSDI). If a person has reached the age requirement but isn’t receiving SSI or SSDI benefits, they may still be able to open an ABLE account if they meet Social Security’s disability definitions and can get a letter of disability from a doctor certifying their condition.

A person with disabilities may only have one account. However, anyone can contribute to it. The maximum contribution is 2023 is $17,000. However, those who work may deposit an additional amount up to their annual gross salary or the individual Federal Poverty Level (FPL). For an individual, the FPL in 2023 is $13,590. In some states, contributions are deductible from state income taxes.

Account owners may keep $235,000 to $550,000 in an ABLE account, depending upon state limits. If there is more than $100,000 in an ABLE account, the excess could cause SSI to be suspended, assuming they had $2,000 in other accounts. SSI can be reinstated if assets fall below the cap. The $100,000 ABLE limit does not apply to benefits from Medicaid or the Supplemental Nutrition Assistance Program, formerly known as food stamps.

Without an ABLE account, many people with disabilities face a choice between building savings and keeping benefits. If ABLE money is spent on a qualified disability expense, such as food, housing, transportation, and other things that improve health, independence or quality of life, withdrawals are free from federal and state taxes.

When the ABLE account owner dies, their estate may use funds from the account to pay for any qualified disability expenses, funeral and burial costs. The state may file a claim on the account equal to the amount the state spent on the individual’s Medicaid program. Any remaining amount passes to the owner’s estate.

Each state’s plan is different, so it makes sense to look at ABLE accounts offered by other states. Several states offer state income tax deductions for in-state residents who make contributions to an ABLE account. ABLE accounts are a lifesaver for special needs children. Discuss with your estate planning attorney how you can incorporate an ABLE account into your overall planning. If you would like to learn more about special needs planning, please visit our previous posts.

Reference: AARP (Jan. 4, 2023) “ABLE Accounts Give Help For People with Disabilities”

There is Great Value in Special Needs Trust

November 21, 2022

Parents with children who have special needs know they play a pivotal role in their child’s medical, social, emotional and mental health. They also face the challenges of figuring out government assistance programs like Medicaid and how these and other programs provide much-needed help throughout a child’s life. Another important way that parents of children with special needs help is with the creation of a special needs trust, as explained in the article “Special Needs Trust (SNT): What It Is and How It Works” from Forbes. There is great value in a special needs trust.

A special needs trust is used to hold assets in an account to be used to support an individual with special needs. The funds belong to the trust and not the individual, so they are not factored into their eligibility for government benefits.

SNTs are typically set up by a parent, grandparent, or guardian. The person who sets up the account, called the “grantor,” funds the account, as may any other individuals who wish to provide for the child.

The grantor names a trustee, or a third party, who administers the trust. The trustee is a fiduciary and must act in the best interest of the beneficiary. Funds are to be distributed in accordance with the directions in the trust. The trustee will be responsible for distributing funds, following government benefit rules and requirements, and managing tax obligations, among other things.

Parents are often the trustees, although others, like siblings or close relatives, may also be trustees. Parents who are both grantor and trustee generally name a successor trustee to take over after they die, become incapacitated or resign from their role.

A person who may not be able to support themselves due to a medical condition or a disability can gain financial security from an SNT. This is one of the great values of a special needs trust.

Someone with special needs is likely to rely on means-tested government benefits, like Supplemental Security Income (SSI) or Medicaid. These benefits are only available to people with limited income or assets. Anyone receiving SSI, for example, may not have more than $2,000 of countable resources.

A parent who wishes to provide support after they die must plan in advance, so their bequest does not result in the person losing their benefits. This could happen if money is left through anything except a special needs trust. An estate planning attorney will know how to structure the parent’s estate plan to protect the individual with special needs and their government benefits.

Assets in an SNT can be used for a wide variety of expenses, including out-of-pocket medical or dental expenses, personal care givers, rehab services, education, vacations, and other permissible uses.

There is a lot of complexity involved with creating a special needs trust. For one, there are several different kinds of SNTs. You’ll want to select the one best suited for your family. Laws about means-tested benefits vary across states, so you’ll need to work with an estate planning attorney familiar with the laws of your state.

A well-drafted estate plan, incorporating a special needs trust can be of great value to the parents of a child with special needs. It will provide your loved one with the resources to maintain as much normalcy as possible as they adjust to life without their parents. If you would like to learn more about special needs planning, please visit our previous posts.

Reference: Forbes (Sep. 22, 2022) “Special Needs Trust (SNT): What It Is and How It Works”

Photo by Nicola Barts

Differences between ABLE Accounts and Special Needs Trusts

August 24, 2022

The cost of care and support can be as much as $100,000 per year. As a result, most individuals with disabilities will require government assistance, such as Supplemental Security Income and Medicaid. However, these individuals must shelter their assets carefully to not be disqualified from these programs. That’s why people many use special needs trusts and ABLE accounts. There are differences between ABLE accounts and special needs trusts.

As CNBC’s recent article entitled “Here’s how ABLE accounts, special needs trusts differ … and how they can work together” explains, there are two kinds of special needs trusts:

A third-party trust is funded with the parents’ [or others’] money, for only the disabled child’s needs. It isn’t in the child’s name, and when the child passes away, the funds go to someone other than the child.
A first-party trust is created with the individual’s own assets to shelter any income, whether earned or inherited, to not go above Medicaid income and asset limits. Distributions must be approved by the trustee. Any funds remaining after the child’s death may be claimed by Medicaid, if the child was a recipient.

Special needs trusts can’t be used for certain basic expenses that are covered by government programs. These are things like groceries, which are covered by Supplemental Nutrition Assistance Program; medical expenses, covered by Medicaid; and housing expenses, covered by SSI.

ABLE accounts, defined as “tax-advantaged savings accounts that can fund disability expenses,” can be used for a range of “qualified disability expenses.”

This is expenditures that help the individual “in maintaining or improving his or her health, independence, or quality of life.” These can cover a computer, communication devices, education, training, financial management, support services, assistive technology, and more.

The individual always has control, as opposed to a special needs trust, where the trustee makes the decisions. ABLE accounts are inexpensive and easy to set up and can be funded immediately with small amounts.

A major feature of an ABLE account is that it lets the individual accumulate more than $2,000 without jeopardizing means-tested benefits. ABLE account holders can keep their funds in cash or they can invest them. A certified elder law attorney will have the experience to help you understand the differences between ABLE accounts and special needs trusts. If you would like to learn more about special needs issues related to estate planning, please visit our previous posts.

Reference: CNBC (July 30) “Here’s how ABLE accounts, special needs trusts differ … and how they can work together”

Photo by Alexander Grey

Category: SSDI

SNT can be a Vital Tool for Families

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