Special-needs cases come in numerous forms, from the physically to the mentally and/or emotionally challenged. From manic depressives to children with cerebral palsy or autism, parents of a special-needs child must deal with a perpetual dependent.
In its simplest form, a trust provides instructions for managing money and other assets. A Supplemental Needs Trust (SNT) is a trust created for a chronically and severely disabled beneficiary which supplements government benefits such as Medicaid rather than diminishing such benefits. Medicaid and other government benefit programs consider the resources and income of an individual for purposes of determining eligibility for assistance and the amount of such assistance. With a SNT, however, a person such as a family member may establish a trust for a disabled individual without jeopardizing the beneficiary’s eligibility for Medicaid and other government benefits because directly giving money to the beneficiary can quickly exhaust their assets while also disqualifying them for government assistance.
Parents with special-needs children often must find a way to support their children long after they might have to support children without disabilities. This can lead to additional and very specific long-term, investment-management services, often emphasizing income generation for an extended time period, longer than the usual retirement plan.
A large part of establishing a special-needs trust focuses on understanding the beneficiary’s needs, which are often complex. Other basic questions to consider are: What are the family’s financial wishes? What are some of the beneficiary’s “lifestyle issues” that must be addressed? What special services are needed? Other key needs may include health care, housing, transportation, entertainment, and selecting a guardian.
SNT’s are usually irrevocable, however, they can be set up within the framework of a revocable trust that goes into effect once the settlors die, giving the settlors maximum flexibility. Life insurance is frequently used to fund SNT’s.
SNT’s allow for the following types of provisions for the disabled beneficiary:
1. Purchase of Services. Services are not counted as income against the beneficiary’s SSI benefits, because they are not easily convertible to cash.
2. Distributing In-kind Income. “In-kind income” exists when you give the beneficiary something other than money such as food, shelter, or clothing.
3. Purchasing items or service in the name of the trust. Ownership by the beneficiary would cause a loss of benefits, so if the beneficiary does not have control of the item, it is probably not an asset or resource to the beneficiary.
Note, however that the disabled beneficiary may own a home outright without jeopardizing government benefits.
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