For disabled patients under 65 who need Medicaid, a special needs trust can be an effective way to maintain Medicaid eligibility and preserve an inheritance or law suit settlement to enhance the disabled patient’s standard of living. Self-settled trusts (i.e., those trusts created by the people who need to have their assets protected) must have a pay-back provision that reimburses Medicaid if there is any money in the trust when they die. Often, parents or grandparents can set up a special needs trust for a disabled son or daughter which does not require a Medicaid pay-back provision. This can be an effective way to pass inheritances to disabled family members without disqualifying them from Medicaid or requiring Medicaid spend down of the inherited funds.
There are three main types of special needs trusts a person can use to protect assets:
1) The Special Needs Trust (known as a “(d)(4)(A) trust” based on its designation under federal law) is a common trust used to protect lawsuit or insurance proceeds or inheritances for someone who is disabled and needs or may need long-term care. This trust must include a Medicaid payback provision at the death of the disabled beneficiary.
2) The Pooled Trust (authorized under (d)(4)(C)) also works similar to a (d)(4)(A) trust in that it is set up for individuals who are under 65 and disabled. The same types of assets can be protected in them, but the pooled trust is established by a charity which runs and administers the trust for a number of disabled beneficiaries. Some portion of the reminder is paid back to Medicaid when the disabled beneficiary dies and the rest is retained by the charity.
3) The Third-Party Special Needs Trust (often referred to as an “Amenities Trust”) is often established by parent or grandparent to leave assets in trust for the benefit of a disabled child or grandchild. The money or assets can stay in trust and does not qualify towards what has to be spent down to achieve Medicaid or SSI eligibility. The trust funds can be used to cover those things not covered by government assistance — referred to as amenities. Because it is set up by a third-party, the remainder in the trust fund can pass through to other heirs or beneficiaries at the death of the disabled beneficiary.
Having a close family member who is disabled can be a blessing, but can also present many issues that force you to be proactive to make sure the disabled person is protected. Using a special needs trust can help you give the loved one the best of both worlds — keeping them fully qualified for government assistance while also helping them with the extras in life. Our Medicaid planning team has extensive experience with special needs trusts. We can help direct you on the right path to take the best care of your disabled loved one and also help you put together the professionals necessary to make it happen.
Call us or email us to see if a special needs trust can help you or a loved one protect assets!
