You have to tread lightly in a fully informed manner if you are advising a loved one with special needs with regard to asset placement. Government benefit programs like Medicaid and Supplemental Security Income are only available to people who have very limited financial resources. The limit on countable assets is just $2000.
Supplemental needs trusts are often used to preserve need-based government benefit eligibility
The primary distinction between the different types of supplemental needs trusts that are used to preserve government benefit eligibility would be the source of the funding.
Self-Settled Special Needs Trusts
Sometimes an individual with special needs who is enrolled in Medicaid and SSI will come into money without working. The assets could come from an inheritance, or they could come from a personal injury settlement or judgment. A person with a disability could also potentially be the beneficiary of a life insurance policy
Under government rules, a legal guardian, a parent, or a grandparent could create a self-settled or first party special needs trust for the benefit of the government benefit recipient. The trust is called a first party or self-settled special needs trust because the trust is funded with assets that belong to the beneficiary
When the trust declaration is created, a trustee would be named to administer the self-settled special needs trust. The trustee could be a family member or an individual that the family trusts, but many people choose to use a corporate trustee like a trust company.
To maintain eligibility for benefits, the trust beneficiary would not be able to directly access the resources in the trust. However, the trustee could use the assets to cover certain unmet needs.
Benefit eligibility would not be jeopardized as long as the trustee acted within the program rules. The beneficiary could live more comfortably, but there would be no downside.
The Medicaid program is required to seek reimbursement from the estate of anyone who passed away after using Medicaid to pay for their health care expenses. If a self-settled special needs trust is established, the assets that remain in the trust after the death of the beneficiary could be attached by the program when reimbursement efforts are initiated.
It is also possible for a third-party to fund a supplemental needs trust, and when this type of trust has been established, Medicaid cannot go after any remainder that may exist in the trust after the beneficiary’s death. This is something to take into consideration if you want to give a gift or an inheritance to a loved one with special needs.
Schedule a No-Obligation Consultation
Our firm can help if you have questions about special needs planning. We offer free, no obligation consultations, and you can drop us a line through this page to set up an appointment: Grand Forks, ND Special Needs Planning.