Frequently Asked Questions About Special Needs Trusts

Q.  What is a special needs trust?

A.  A Special needs trust (“SNT”) is a form of a pure discretionary, spendthrift trust designed to preserve a disabled person’s eligibility for government benefits.  These public benefits may include means-tested programs where eligibility is based on financial need, such as Medicaid, Supplemental Security Income (“SSI”) or Food Stamps, or insurance programs where eligibility is based on criteria other than financial need, such as Medicare or Social Security Disability Income.

Q.  Are there different types of special needs trusts?

A.  Yes. There are both private and pooled First Party Special Needs Trusts. In addition, there are Third Party Trusts as well.

Q.  What is a first party private special needs trust?

A.  The characteristics of a private special needs trust found at 42 USC §1396p(d)(4)(A) Trusts are:
• Individual trusts drafted by an attorney
• State specific
• For a beneficiary under the age of 65
• No additional funds may be added to the trust after the beneficiary is 65 years old, unless through a previously established structured settlement annuity
• Only parent, grandparent, guardian or a court may establish such a trust
• The trust agreement must grant Medicaid a first right of recovery against the trust assets upon the beneficiary’s death
• The trustee must be knowledgeable enough about government benefits to protect the beneficiary’s eligibility for said benefits
• The costs associated with drafting and establishing a private first party special needs trusts can vary depending on the facts of the case
• Approval of the trust from Medicaid must be secured in order for the trust to be deemed a non-countable resource

Q.  What is a pooled special needs trust?

A.  The characteristics of a pooled special needs trusts found at 42 USC §1396p(d)(4)(C) are:

o Trust is administered in accordance with one master trust agreement
o The trust is administered for the benefit of individuals nationwide
o Anyone can join a pooled trust, but Medicaid often considers joining a pooled trust after
the age of 65 to be an improper transfer
o Unlike with private special needs trusts, a disabled individual may join the trust himself/herself
o Medicaid payback may be avoided by permitting the trust to keep the assets upon the death of the beneficiary
o The trustee must be knowledgeable about government benefits to properly administrator the trust
o The costs associated with joining a pooled trust are generally lower than those associated with establishing a private special needs trust
o An individual can join and establish an account with a pooled trust in a very short period of time
o The pooled trust trustee will secure the necessary government approval

Q. What is a third party special needs trust?

A. The purpose of a third party special needs trust is to preserve public benefits for an individual or family member with physical or mental disabilities. Money is provided to a trust for the benefit of a disabled individual via gift or inheritance. The trust is to provide for the disabled person’s supplemental needs. The trust must be a pure discretionary spendthrift trust that grants the trustee the authority to determine if and when a distribution is appropriate and to deny a requested distribution if such a distribution could negatively impact the beneficiary’s eligibility for benefits and/or overall well being. Third party special needs trusts can be testamentary or intervivos trusts and can be revocable or irrevocable. Also, and of great importance, Medicaid is not the primary beneficiary upon termination of the trust, rather the grantor can determine how the remaining trust assets are to be disbursed at the death of the beneficiary.

Q. What are the questions to ask when establishing a special needs trust administration?

A. The following questions should be asked:

  • Does the client want to determine the trustee, financial manager, and the terms of trust administration?
  • Does the trustee require a minimum deposit for trust services?
  • Does the trustee have experience with special needs trust administration?
  • What are the fees for trustee services?
  • Will the trustee travel to meet with the beneficiary?
  • How are disbursements requested and processed?

Q. What are some additional special needs trust considerations?

A. The primary goal of a special needs trust is to preserve an individual’s means-tested government benefits. Therefore, it is important to learn if individual has a parent, grandparent or legal guardian who can establish the trust on his or her behalf. If not, a court order must be obtained to establish the trust properly.

Q. What happens upon termination of the special needs trust or death of the beneficiary?

A. Any money/property left in the trust must pay back Medicaid for all of the expenses paid for
on behalf of the Medicaid beneficiary during the time the trust was in existence. Some states,
however, take the position that Medicaid’s right of recovery extends to all benefits provided
during the trust beneficiary’s lifetime. As a result, it is always important to speak with the state
Medicaid office before advising a client about establishing a special needs trust.
Generally, any and all remaining money/assets/property in the trust after reimbursing Medicaid
passes to the beneficiary’s heirs at law.

Q. What are government benefits?

A. Government benefits are forms of healthcare and/or financial assistance that are made
available to people within the United States. While eligibility for certain government benefits is
based upon an individual’s monthly income and the value of resources he/she owns, eligibility
for other programs is based on the number of quarters of employment during which an
individual paid taxes into the Social Security system. Examples of means‐tested benefits are
Medicaid, Supplemental Security Income, Food Stamps and Section 8 Housing Vouchers.
Examples of entitlement‐based benefits are Medicare, Social Security Disability Income and
Disabled Adult Children’s benefits.

Q. What is Medicare?

A. Medicare is a health insurance program that pays for an eligible individual’s medical costs.
Similar to SSDI, Medicare is an insurance program and not a program that is provided to people
based on financial need. In simplest terms, Medicare pays for acute care, hospitalization,
limited skilled nursing care, physician’s visits, medications used in the hospital, and prescription
drugs under Part D.

Q. What is Medicare?

A. Medicare is a health insurance program that pays for an eligible individual’s medical costs.
Similar to SSDI, Medicare is an insurance program and not a program that is provided to people
based on financial need. In simplest terms, Medicare pays for acute care, hospitalization,
limited skilled nursing care, physician’s visits, medications used in the hospital, and prescription
drugs under Part D.

Q. What is Medicaid?

A. Like Medicare, Medicaid provides insurance coverage for basic medical and hospital care, as
well as prescription drugs and long‐term care services. In addition, and most often of critical
importance to those with disabilities, Medicaid will pay for rehabilitative services, therapy
(occupational and physical), and for care in either an individual’s home, a group home or
nursing facility. Many states also provide services through waiver programs to support
individuals with disabilities in the community.

Q. What is Supplemental Security Income (“SSI”)?

A. SSI is a means‐tested Social Security (federal) benefits program that provides income to
certain aged, blind and disabled people. The purpose of the SSI program is to provide certain
individuals with income to be used for food and shelter. In 2014, the maximum amount of SSI
for an individual is $721 a month.

Q. What is Social Security Disability Income (SSDI)?

A. Social Security Disability Income (SSDI) is a benefit paid to people who cannot work because
they have a medical condition that is expected to last at least one year or result in death.
Federal law requires this very strict definition of disability. In general, to get SSDI benefits, you
must meet two different earnings tests: (1) a “recent work” test based on your age at the time
you became disabled; and (2) a “duration of work” test to show that you worked (paid enough
in social security taxes) long enough under Social Security. Certain blind workers have to meet
only the “duration of work” test.

Q. What is Social Security’s definition of disability?

A. Social Security’s definition of disability is the inability to do any substantial gainful activity by
reason of medically‐determinable physical or mental impairment that can be expected to result
in death or that has lasted or can be expected to last for a continuous period of not less than 12
months. In other words, the injury must prohibit the person from performing his or her
previous job or any other substantial gainful activity in the national economy.

Q. Can I become eligible for Medicare coverage after being determined to be disabled?

A. Yes. An SSDI beneficiary is entitled to receive health insurance coverage under the Medicare
program after receiving SSDI benefits for a period of two years.

Q. What are Childhood Disability Beneficiary (CDB) benefits?

A. CDB benefits are SSDI benefits that are made available to a child (minor or adult) when
his/her parent(s) reach retirement age, become disabled or die. The benefit is based upon the
parent’s earning’s record with Social Security and is paid out as part of the parent’s Social
Security benefit. In order for an adult child to access this benefit, he/she must have been
determined to be disabled prior to the age of 22.

Q. Will an individual lose Medicaid coverage if the CDB benefit is greater than the SSI benefit?

A. No. Generally speaking, whenever an individual loses his/her eligibility for Medicaid due to
the receipt of benefits or an increase in a Social Security benefit, federal law ensures that the
individual’s eligibility for Medicaid will remain in place.

Q. What is the amount of income an individual can receive per month and the total amount
of resources that someone can own and still maintain his/her eligibility for SSI?

A. Generally speaking, a person can receive up to $720 per month in income and can own
$2,000 in countable resources and still maintain his/her eligibility for SSI.

Q. What is a resource?

A. Resources are generally defined as those assets an individual or couple own and can apply,
either directly or by sale or conversion, to meet basic needs of food, clothing and shelter.
Resources may be available money, real property, personal property or other assets subject to
provisions for relative responsibility.

Q. What are some examples of non‐countable resources?

A. Non‐countable resources include household goods and personal effects, an automobile, life
insurance with a cash value not to exceed $1,500, a prepaid burial plot or a burial fund up to
$1,500, and pre‐paid funeral contracts valued up to $10,000.

Q: Does Life Plan carry liability insurance to protect client accounts?

A:  Yes.  Life Plan has fiduciary insurance for both court ordered and non-court ordered Special Needs Trusts and Supplemental Needs Trust accounts.