Disability planning

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Disability planning allows a person with disabilities to plan for their future if they receive government benefits and are expecting a settlement, award, gift or inheritance which would otherwise disqualify them from those government benefits.  Usually, those government benefits are received from Supplemental Security Insurance (SSI) and Medicaid (sometimes referred to as Title 19).


Special Needs Trusts are irrevocable trusts established for the benefit of one, and only one, person with disabilities.  That one person with disabilities is referred to as the “life beneficiary.”  Such trusts can be established by the person with disabilities; his or her parent, grandparent, guardian or conservator; or a court.  


Each special needs trust can only be funded with assets which would otherwise belong to the life beneficiary as an individual.  For example, if grandmother gives a cash gift to her grandchild with a disability, that gift would count against that grandchild’s SSI and Medicaid eligibility.  However, if grandmother gives the same cash gift to that same grandchild’s special needs trust, it may not count against that grandchild’s SSI and Medicaid eligibility at all.


The person with disabilities cannot serve as the trustee of his or her own special needs trust.  An initial trustee and a successor trustee must be named in the special needs trust instrument.  A special needs trust can pay for many things for the life beneficiary, but cannot pay for expenses related to housing or food.  Also, the life beneficiary cannot receive distributions of cash from his or her special needs trust.


When the life beneficiary dies, the assets remaining in his or her special needs trust must be used to pay Medicaid back for expenses it paid on behalf of the life beneficiary during his or her life.  If there are assets remaining in the life beneficiary’s special needs trust after Medicaid has been paid back, those remaining assets are distributed to those beneficiaries named in that special needs trust.


Supplemental Needs Trusts are similar to special needs trusts, but there are several important differences.  Supplemental needs trust are still established for only one life beneficiary, who must be a person with disabilities.  Anyone (except the life beneficiary him- or herself) can establish a supplemental needs trust for a person with disabilities. 


Supplemental needs trust can be established as a revocable trust or as an irrevocable trust.  If established as a revocable trust, only the person establishing the trust can change the terms of or terminate the trust at a later time.  


Unlike special needs trusts, supplemental needs trust can only be funded with assets that do not belong to the life beneficiary.  For example, grandmother can deposit cash to grandchild’s supplemental needs trust without designating it as a gift to grandchild.  Technically, those deposited funds never belonged to grandchild and, therefore, cannot jeopardize grandchild’s governmental benefits.


The person with disabilities cannot serve as the trustee of his or her own supplemental needs trust.  An initial trustee and a successor trustee must be named in the supplemental needs trust instrument.  A supplemental needs trust can pay for many things for the life beneficiary, but cannot pay for expenses related to housing or food.  Also, the life beneficiary cannot receive distributions of cash during from his or her special needs trust.


The most important difference between a special needs trust and a supplemental needs trust relates to the reimbursement of Medicaid after the life beneficiary dies.  Assets remaining in a supplemental  needs trust are not responsible for paying Medicaid back for expenses it paid on behalf of the life beneficiary during his or her life.  All of the assets remaining in the life beneficiary’s supplemental needs trust are distributed to those beneficiaries as named in that supplemental needs trust.


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