This post is part of a month-long series about special needs trusts. We welcome you to contact our comprehensive settlement planning firm, Milestone Consulting, with any questions or to seek advice about whether establishing a trust is right for you.
Many people with special needs rely on “means-tested” government benefits programs, which are available only to those whose income and assets are below a certain limit. When a personal injury settlement comes in, that influx of cash can impact a person’s eligibility. If you are a beneficiary of Supplemental Security Income (SSI), Medicaid, and/or other means-tested programs and you’re headed toward settlement, you’re probably wondering if it’s possible to keep your benefits. Smart settlement planning can help ensure these benefits continue.
A special needs trust is one way of working around this issue. A special needs trust is intended to supplement, rather than replace, a person’s government benefits. The assets in a special needs trust can be used to pay for“non-countable” resources – meaning anything that government benefits don’t cover.
Here are some examples of “non-countable” purchases that can be made from a special needs trust:
- A home. Buying a home to have as a primary residence shouldn’t compromise a person’s eligibility for benefits. For those who receive Medicaid but not SSI, the value of the home could be limited.
- Home furnishings and personal belongings. Furniture, decorations, art, appliances and other personal effects fit into this fairly broad and loosely-defined category.
- A car. The beneficiary of a special needs trust can own one motor vehicle without threatening SSI benefits.
- Occupational goals. Plan To Achieve Self-Support (PASS) is a program that allows people receiving SSI to use funds towards achieving educational or work goals without threatening their benefits.
- Essentials for self-support. Purchases of property that will be used in work are usually OK. There are limits on the value of these items based on their rate of return.
- Life insurance policies. These policies do not count toward eligibility, as long as they have a cash surrender value lower than $1,500. The cash surrender value is how much an insurance company pays the policyholder if the insurance policy is voluntarily terminated before it matures.
- Burial expenses. Special needs trusts can set funds aside to cover burial expenses up to $1,500.
When establishing a special needs trust, it’s important to know which assets are non-countable and which are countable.
First-Person vs. Third-Party Trust
There are two common types of special needs trusts. A first-person trust requires assets come from the beneficiary, for example, in instances of an injury settlement. The remainder of a first-person trust typically reimburses the government for what it has paid. In other words, the beneficiary may continue to receive SSI and Medicaid and get the benefit of the assets placed into the trust; but upon death, the state is paid back first out of the trust assets.
A person’s family creates a third-party trust to ensure he or she receives the present and future care they would want and expect. Parents who set up a third-party trust have more control over the balance than they would with a first-person trust. Like with other types of trusts, the remainder could be allocated elsewhere at their discretion.
If you’re considering establishing a special needs trust for yourself or a loved one, we welcome you to contact our settlement planning firm, Milestone Consulting, to get the information you need.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).