A crucial consideration for your comprehensive estate plan involves caring for family members or loved ones with special needs. Leaving gifts to loved ones with special needs might cause unintended consequences without proper planning. Your estate plan can include a Special Needs Trust (SNT) that will ensure both funding and resource management that best serve the beneficiary.
“Special needs” can include conditions such as cerebral palsy, Down syndrome or quadriplegia that require lifelong assistance from trusted caretakers. This type of assistance is expensive, especially if your loved one’s special needs require daily assistance with routine activities. Because of the sheer cost, persons with special needs often pursue public benefits programs for disability care.
Many public benefits programs have “asset limits,” which terminate or phase out benefits for a beneficiary with a specific amount of available resources such as cash or investments. For example, Medical Assistance, the most-sought public benefits program for special needs care, has an asset limit of $8,000 in Pennsylvania for some recipients. And giving away money won’t help a person avoid asset limits. Benefits programs like Medical Assistance impose “ineligibility periods” on applicants who gift their preexisting resources to meet asset limits.
Thankfully, SNTs allow you to leave resources for your loved ones with special needs while preserving their access to public benefits. Generally, if you leave more than the $8,000 asset limit to a loved one on Medical Assistance in your will, the recipient may lose their coverage. But the law excludes SNT resources from counting towards the asset limit. Resources in your SNT can fund your loved ones’ needs in supplement to public benefits coverage. For example, an SNT could make mortgage or rent payments on behalf of the beneficiary. It could also purchase medical devices or household items that aren’t covered by public benefits. These supplemental funds will improve your loved ones quality of life while maximizing public assistance.
It’s never too early to start planning for special needs. The SNT is a planning tool that empowers you to leave resources for loved ones with special needs while accounting for the complexity of benefits eligibility. The next blog will explain the benefits of SNTs at a more granular level.
Now that you know what a Special Needs Trust (SNT) is, it’s important to understand its specific advantages.
First, a SNT allows you to transfer unlimited assets for the benefit of your beneficiary. These assets will supplement beneficiary expenses covered by public benefits, not supplant them. That means the SNT assets will fund additional needs on top of what public benefits provide. The SNT’s language will clearly state that the funds do not replace public assistance.
The SNT assets will be managed by a trustee of your choice. In some cases, it may be advisable to hire a corporate trustee who has financial expertise and competence in managing the complex requirements for public benefits programs, as well as the ability to navigate changes in government regulations that happen down the road. In the case of a smaller SNT, appointing a non-profit or trusted family member might make more sense.
Your SNT will manage the types of assets that would otherwise disqualify your beneficiary from receiving public assistance. Generally, besides assets in an SNT, public assistance benefits exempt a beneficiary’s home, home furnishings, one vehicle, burial plot, limited amounts of burial funds, and small life insurance policies from asset limits. But cash, investments, larger life insurance policies, and additional real estate beyond the beneficiary’s home will trigger the asset limits. If properly transferred to an SNT, these assets won’t disqualify your beneficiary from receiving public benefits.
But there are also limits to how trustees use SNT resources for beneficiaries. Distributions to a beneficiary can risk public benefits. When planning for public assistance, it is recommendable to work with a trusted advisor who can guide you through the best practices to make sure your beneficiaries are cared for in the way you intend.
