Planning for the care of a loved one with a disability can be challenging. Disabilities can occur at any point in life, whether diagnosed at birth or as an adult, or caused by injury or illness. Providing continued support and protection for a disabled individual, having the ability to make future decisions on his or her behalf, and the ability of the individual to manage money are crucial considerations.
If a disabled individual is on means-based government benefits with income and asset limits, such as Supplemental Social Security (SSI) or Medicaid, then receiving sums of money through an inheritance or injury settlement could jeopardize eligibility. With proper estate planning, often through special needs trusts, your loved one can have additional funds for their continued support and protection while maintaining government benefits.
What are Special Needs Trusts?
Special needs trusts are trusts designed for disabled individuals to have funds to supplement their means-based government benefits. Special needs trusts provide funds for a disabled child or adult to pay for services and care not otherwise provided by government benefits without disrupting eligibility.
For example, if you leave $50,000 at your passing outright to a disabled child receiving means-based government benefits, then your child will lose eligibility for the benefits. Instead of leaving money directly to your child at your passing, a better planning option is to fund a special needs trust where a trustee will control and manage the funds for your child. Since the trust owns the funds and a trustee has control over the funds, Medicaid or Social Security will disregard the funds for benefits eligibility purposes.
There are different types of special needs trusts available to provide for disabled individuals, including third-party discretionary special needs trusts, first-party Medicaid payback special needs trusts, and pooled trusts.
THIRD-PARTY DISCRETIONARY SPECIAL NEEDS TRUST
A third-party discretionary special needs trust is a trust established by someone with his or her own funds for the benefit of a disabled individual. This type of special needs trust is typically created by a parent or grandparent for the benefit of a disabled child or grandchild who receives means-based government benefits.
The purpose of this special needs trust is to provide additional funds to a loved one beyond what he or she receives through means-based government benefits to enhance quality of life. Creating a third-party discretionary special needs trust allows your loved one to preserve his or her government benefits, as the funds are owned by the trust, managed by a trustee, and never legally become your loved one’s property.
This type of special needs trust provides an alternative to outright disinheriting a disabled beneficiary, giving money to someone with the hope that they use the money to care for the disabled individual, or leaving money directly to a disabled individual that would result in loss of benefits.
A significant advantage of this trust is that there is not a mandated Medicaid payback provision. Any assets remaining in the trust at the death of the disabled individual can go to family members or other designated beneficiaries instead of reimbursing the State of Ohio.
Third-Party Discretionary Special Needs Trust Requirements: The beneficiary must not have the ability to revoke the trust or compel distributions of assets; Only assets of a third-party can be used to fund the trust and an individual can create a discretionary trust during his or her lifetime or through his or her will or trust at death.
FIRST-PARTY MEDICAID PAYBACK SPECIAL NEEDS TRUST
Medicaid and SSI have a strict asset limit of $2,000 and having assets over this amount can disqualify an individual from receiving benefits. A first-party Medicaid payback special needs trust is funded with the disabled individual’s own assets. If a disabled individual who is on Medicaid or SSI receives a personal injury settlement or inheritance outright, then the individual can establish this type of special needs trust and preserve his or her benefits. Additionally, if an individual becomes disabled and already has $50,000 in a bank account, then the individual can transfer those funds to a Medicaid payback special needs trust and become eligible for Medicaid and SSI benefits.
First-Party Medicaid Payback Special Needs Trust Requirements: Must be set up for the benefit of the disabled individual with his or her own assets by the individual, parent, grandparent, guardian, or court; The beneficiary of the trust must be under 65 years of age when the trust is established; The trust must be irrevocable; The beneficiary must not be able to compel a distribution or terminate the trust; The beneficiary must be disabled according to the Social Security Act and the trust must include a payback provision to reimburse the State of Ohio for up to the amount of medical assistance paid.
POOLED TRUST
A pooled trust is a trust established with a disabled individual’s assets that is managed by a nonprofit organization. The nonprofit organization pools the assets of many participants who each have their individual account together and invests the funds. A pooled trust can be established with the funds of a disabled individual who is 65 years of age or older or when there is a small amount of assets involved.
Pooled Trust Requirements: The trust must be set up for the benefit of the disabled individual with his or her own assets by the individual, parent, grandparent, guardian, or court; The trust must be irrevocable; The beneficiary must not be able to compel a distribution or revoke the trust; Created and managed through a nonprofit organization and must include a Medicaid payback provision to reimburse the State of Ohio for up to the amount of medical assistance paid.
Professional and Experienced Help Is Available
At My Ohio Estates, we are experienced in Ohio special needs planning. We help clients create unique plans that preserve benefits eligibility and ensure ongoing support and care for loved ones with disabilities. To learn more about special needs trusts and how to set one up for your loved one, please contact My Ohio Estates today.