Special Needs Trusts
When there is a member of the family with a disability, special attention must be given to properly and effectively provide for them during their life span and to enhance their quality of life. One who has a family member with a disability should consider a Special Needs Trust as a part of their estate plan.
The basic purpose of a “Special Needs Trust” is to provide benefits by way of a trust, to a beneficiary who would otherwise lose eligibility for public assistance (Supplemental Security Income, Medicaid, vocational rehabilitation, subsidized housing, etc.) upon receiving an inheritance. Many public assistance benefits are “means-tested” and recipients may not own significant assets (generally limited to $2,000.00) and must also have limited income. The dilemma for parents becomes “what to do when the parents die.” Leaving an inheritance to the disabled child risks disqualification for an established benefit program. The option of disinheriting the child and leaving his or her share to someone else with a commitment to care for the disabled child is generally not satisfactory. That other individual could die, become disabled, have their own creditor problems, get divorced, etc., all of which would put the assets intended for the disabled family member at risk. This is where a Special Needs Trust comes into play.
A Special Needs Trust is a fund established to provide for the well-being and needs of the family member with the disability without disqualifying that individual from any publicly-funded (government) programs. These trusts can be established at death through a Will, or during life by a separate trust created by parents, grandparents, siblings or other interested persons. The distribution of funds from the trust is restricted so the money cannot be used for essential food and shelter, or to pay for any items that would otherwise be paid for by a publicly-funded program. Benefits from the trust then supplement the public funds for such things as vacations, extraordinary medical expenses, third party personal services such as at-home caregivers to enhance the quality of life of the disabled family member. Exhibit “A” to this article is a list of currently permissible uses of trust money that will not interfere with public assistance eligibility.
There are basically two types of Special Needs Trusts. The key difference between these two types is what happens to the assets remaining in the trust after the death of the beneficiary. The first is a “disability” or “self-funded” trust. These trusts are established with assets belonging to the person with the disability. These funds may be from a personal injury award, accrued social security benefits, or in some cases an inheritance. If properly drafted, assets in the trust are not accountable in the means testing for public support programs and will not disqualify the person from public assistance. At the death of a disabled beneficiary, the State of Michigan must be reimbursed out of remaining trust assets, if any, to the extent that public moneys were expended for the beneficiary’s medical and other assistance.
The other type of trust is the “third party created trust” established with assets that belong to someone other than the beneficiary with the disability. Distributions from the trust are solely at the discretion of the trustee. Distributions can be made for anything the beneficiary wants for personal use that is not in the category of food or shelter. Upon the death of the disabled individual, the balance of the trust estate goes to whomever the person establishing the trust decides. Generally that would be the brothers and sisters of the disabled individual.
If you have a family member with a disabling condition and have concerns about their ultimate welfare, please contact us at Smith & Johnson, Attorneys, P.C.
EXHIBIT A
List of Items Properly Paid for by a Special Needs Trust
- Acupuncture/acupressure
- Advocacy
- Attorney fees
- Appliances (TV, VCR, stereo, microwave, stove, refrigerator, washer/dryer)
- Athletic club membership
- Babysitting for beneficiary
- Books and magazines
- Bottled water
- Bus pass/public transportation fees
- Care management services
- Clothing
- Clubs and club dues (record clubs, book clubs, health clubs, service clubs)
- Computer (hardware, software, programs, Internet service)
- Curtains, blinds, drapes
- Day care for minor or disabled trust beneficiary (generally not for beneficiary’s children)
- Dry cleaning and laundry services
- Education: courses or classes (academic or recreational)
- Elective surgery
- Fitness equipment
- Furniture, home furnishings
- Gasoline for automobile
- Haircuts/salon services
- Hearing aids and batteries
- House cleaning/maid services/cleaning supplies
- Insurance (automobile, home, and/or possessions)
- Linens and towels
- Massage
- Musical instruments (including lessons)
- Nonfood grocery items (laundry soap, bleach, fabric softener, deodorant, dish soap, hand and body soap, personal hygiene products, paper towels, napkins, Kleenex, toilet paper, any household cleaning products)
- Over-the-counter medications (including vitamins or herbs)
- Personal assistance
- Personal supplies (shampoo, toilet paper, deodorant, toothbrush/paste, etc.)
- Pet, pet supplies
- Physician specialists
- Private counseling
- Recreation (movies, sporting events – but not meals)
- Repair services (appliance, automobile, bicycle, household)
- Retail store charge accounts (gift, craft, hardware and pet stores)
- Respite care
- Sporting goods/equipment
- Swimming pool
- Taxicab scrip
- Tickets to concerts or events (for beneficiary and an accompanying companion)
- Transportation (automobile, motorcycle, bicycle, moped)
- Travel
- Utility bills – telephone, telephone answering machine, cable, television
- Vacation