Special Needs Trusts

When you want to bequeath an inheritance to a loved one with special needs, then you want to be sure that you are doing so in a way that does put their Supplemental Security Income and Medicaid benefits at risk. If, for instance, you want to leave them $15,000 in cash, then your loved one would be ineligible to benefit from SSI or Medicaid. On the other hand, property, personal items, a car, etc., will not threaten their eligibility at all.

With a special needs trust, you would not be passing down property directly to your beneficiary, but the person you choose as trustee will have control of the property and funds. (Typically, you would start out as the trustee, and then you would name a successor trustee for when you pass away or become incapacitated.) In this way, SSI and Medicaid officials will not disqualify your beneficiary for this property and funding.

What your trustee cannot do is directly furnish your beneficiary with money; this would still affect their qualifying for the aforementioned benefits. The trustee can purchase things for the beneficiary, however, but he or she will have to be very careful to not purchase or invest in things that would interfere with the beneficiaries qualifying for SSI or Medicaid. Here are acceptable things to purchase with trust funds:

One house. Your beneficiary can own a home for a primary residence, and it can be worth any amount and still not affect SSI benefits. If your loved one only gets Medicaid, however, the value of the house can be no higher than $500,000 or $750,000.
One car. Similarly, your loved one can own one motor vehicle, of any value, with their eligibility intact.
Furniture and "personal effects". Essentially, this means any item that can go inside your beneficiary's home.
Burial and life insurance. A life insurance policy cannot be worth more than $1,500 in cash, but burial insurance policies can be worth any amount. But if instead of a policy, burial costs are put into an account or trust, then the funds cannot exceed $1,500.

There are additional acceptable uses for the trust, but they are rather complicated. For one thing, some expenditures that would usually disqualify a person are allowed under PASS (Plan for Achieving Self-Support). With this, people who receive SSI benefits can use certain assets for college, vocational training, or even for a business startup. Also, a trustee can buy anything that your loved one will need for work, as long as its value is in proportion to how much they will profit from it, plus other factors. This is definitely something to consult a probate lawyer about.

If your beneficiary ends up with more than $2,000 of countable resources in their possession, then this will end their eligibility for SSI. The following are some countable resources: cash, checking and savings accounts, stocks, bonds, any real estate that is not the primary residence, retirement accounts, investments, and Uniform Transfer to Minor Accounts.

If you do not have anyone that you would like to name as trustee for the funds, or if you are leaving a modest amount to your loved one, then you might to look into a pooled trust (or community trust). This is an option in most places of the country. Instead of choosing your own trustee, a nonprofit organization would oversee the pooled resources, each beneficiary getting a personal account. Of course, not all organizations are created equal, so there is no guarantee as to how well any given nonprofit will be able to oversee your funds. Also, pooled trust funds can end up being pricy, what with fees and startup costs. You also do not get to create the rules to fit your unique situation. But a pooled trust fund will be managed by people who understand SSI and Medicaid benefits. The nonprofit is further likely to be run by people with relatives who have disabilities, and they are likely to be understanding and sympathetic. It might also furnish your loved one with access to more funds than you could pass down on your own in a special needs trust.

Whatever your choice, when it comes to creating a trust, you need to make sure that you understand all your options and that everything is in order. While it might be possible to create this trust fund on your own, it is often a good idea to consult an experienced probate lawyer. This is especially true when there are complicating factors, such as if you want to set up a trust with the beneficiary's money from a personal injury lawsuit, or when state laws are particularly tricky. Start finding the legal expert you need today!