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Elder Law Center One Essex Street Saugus, Massachusetts 01906 Telephone 781.233.4444 Fax 781.231.2222
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Saugus Advertiser May 13, 2004
SPECIAL NEEDS TRUSTS In the Medicaid context, the term special needs covers a wide range of individuals. It could be someone who has been severely injured due to a negligent automobile driver, an elder who needs nursing home care, a mentally retarded person or those who meet the broad category of permanently and totally disabled under the Social Security rules. The main idea behind Special Needs Trusts is that assets can be placed into these trusts without affecting the individual’s right to receive public benefits. This is very important for a family who has a special needs child. Assets in the SNT could be used to supplement the benefits the child is receiving and to provide opportunities that would otherwise be unavailable. Parents of disabled children have four options with respect to estate planning. They could either disinherit the child, distribute assets to the disabled child, distribute assets to a sibling with the understanding that they would use the assets for the disabled child or distribute the assets to a special needs trust. The first planning option is to simply disinherit the child. This means that they would not receive anything under your will. If the estate is small and the child's needs are great, this may be the best solution because the small amount of money would not be sufficient to meet the child’s needs. The second option is to make a gift to the disabled child. This is not a good option because it could render the child ineligible for SSI. When they become ineligible for SSI they would also lose their MassHealth (Medicaid) benefits that covers all of their medical expenses. The Commonwealth will charge the child with the cost of their care, and will continue to charge until all of the monies have been exhausted. The use of a properly drafted trust will avoid the virtual confiscation of the funds by public institutions. The third option is to distribute the assets to a sibling to use for the benefit of the disabled child. Having the assets in the sibling’s name is risky because they would be lost to a divorce or lawsuit against the sibling. The sibling could also end up making taxable gifts if they gave the disabled child over $11,000 per year. The final option is a distribution to a special needs trust. The primary purpose of the SNT is to benefit individuals who qualify for public benefits. The properly drafted SNT will make it so that the funds are not available to the disabled individual for Social Security and Medicaid purposes. The trust must provide that no distribution of income or principal may be made that would reduce the amount of public benefits to which the beneficiary would otherwise be entitled. If the special needs child were to receive an inheritance directly, their public benefits would cease. Before long, the inheritance would be spent and the child would go back on public benefits. By having the SNT the child would be able to use the money for educational programs, vacations, telephone charges, and personal gift items. In other words, money can be spent on anything except basic food, clothing, or shelter that can enhance a person’s quality of life. There are two commonly used versions of the SNT. The first type is a third party SNT that is established by a third party with assets of the third party for the benefit of a disabled person. Typically, these trusts are established by a parent for the benefit of a disabled child. These third party trusts do not have a payback provision. By this I mean that after the child’s death there is no lien or payment due to Commonwealth for benefits that have been paid for the benefit of the child. The other commonly used version of the trust is called a self-settled SNT, commonly referred to as a (d)(4)(a) trust. It is established with the assets of the disabled person. An important difference between the (d)(4)(a) trust and the third party trust is that upon the death of the beneficiary, the assets remaining in the trust must be used to pay back any Medicaid benefits that the disabled person received during life. This is called a payback provision. These trusts are frequently used when an injured party receives money as a result of a court case. When doing your estate planning you should ask yourself, are any of the beneficiaries of my will receiving public benefits? If the answer is yes, you need to consider what effect receiving an inheritance will have on those benefits and act accordingly. This article gives general information and not specific advice on individual matters. Persons wanting individualized advice on matters discussed should contact an advisor experienced in those matters. To the extent this article provides information on legal matters, it is based on law in effect in Massachusetts on the date of posting (laws in effect in other states are often quite different). Ronald H. Surabian is a CPA and attorney who works at the Elder Law Center in Saugus, Massachusetts. He also holds a masters in accounting and a masters in tax law. He currently serves on the board of directors of the Massachusetts Chapter of the National Academy of Elder Law Attorneys. If you have any questions please call me at the Elder Law Center, One Essex Street, Saugus, MA 01906 (781)233-4444. To view this or any prior article, please visit our web site at www.elderlawcenter.org.
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