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A special needs trust (SNT) is a type of trust used in Wisconsin estate planning. A special needs trust allows a person with a disability to preserve and use their financial assets while maintaining eligibility for government benefits such as those provided by Social Security, Supplemental Security Income (SSI), or Medicaid.
The primary benefit of a special needs trust is maintaining the eligibility for need-based government programs. Often, if a disabled person receives an inheritance outright, it will make them ineligible for helpful programs they’d otherwise have access to. This type of trust allows them to benefit from an inheritance without losing benefits.
Another key benefit is the oversight the trustee has. The trustee is able to manage the finances of the trust. This is especially helpful when the person with the disability is unable to manage their own money. That way, after the parents have died, the beneficiary still has the help of a trusted person to manage their finances.
In order to maintain that eligibility, there are some limitations on what the trust funds may be used for. That said, the funds offer more flexibility than government benefits alone, which can help improve the quality of life for disabled people with a special needs trust and conserve any gifts/inheritances.
Many disabled individuals use need-based government programs to assist with their living expenses and care. These programs have financial restrictions, since they are designed to help individuals with limited financial means. That makes it difficult for people with disabilities to receive inheritances, and it also creates challenges for loved ones to ensure the continued care of disabled dependents.
By creating a special needs trust, assets are put into the trust instead of directly into the beneficiary’s name, and those assets are not considered countable assets for Medicaid or as countable resources for SSI.
A trustee manages the assets on behalf of the beneficiary and ensures the assets are used in a way that increases their quality of life but maintains their eligibility for public benefit programs.
Special needs trusts have spending rules that must be followed in order to retain eligibility for need-based government benefits. It’s the responsibility of the trustee to ensure the assets are managed and distributed in a way that does not jeopardize benefits.
Spending rules include restrictions such as:
The spending rules are intended to ensure trust asset distributions supplement, not replace, government benefits. The trust is intended to improve the quality of life for the beneficiary without jeopardizing their eligibility for these critical benefits.
Generally, money from a special needs trust can be used for:
The trustee should keep accurate records of disbursements to ensure they comply with regulations and in case they are audited by agencies like Medicaid or the Social Security Administration (SSA).
The best trust for a disabled person is a special needs trust (SNT). There are a few different types of special needs trust, and the best one depends on a disabled person’s unique needs, financial situation, and the government benefits they are receiving or may receive in the future.
A first-party special needs trust is funded by the disabled individual themselves, often with an inheritance or a personal injury settlement. This preserves eligibility for needs-based government benefits (like SSI and Medicaid), but requires Medicaid payback upon the beneficiary’s death, which prevents the assets from being inherited by someone else.
A third-party special needs trust is funded by someone other than the disabled individual–often a parent, grandparent, or other family member–to ensure their disabled loved one is cared for after they pass away.
Many people choose this option so that when the initial beneficiary dies, any remaining money can go to secondary beneficiaries such as other family members rather than the government.
Pooled special needs trusts are managed by nonprofit organizations and serve multiple beneficiaries. They are typically used by individuals or families with limited assets, when establishing a private trust may not be practical.
A special needs trust is specifically designed to protect the government benefits that a disabled person is receiving or may receive in the future. A regular trust generally has no focus on preserving benefit eligibility.
Consult with an estate planning attorney who can help ensure your special needs trust is set up and funded correctly. With an attorney’s help, such as those at Grieve Civil Law, you will follow these steps:
When set up and managed correctly, a special needs trust will not affect SSI benefits. Individuals should work with an attorney to ensure the trust is set up correctly, so benefits are not affected.
With the help of our attorneys, you can help set up your disabled loved ones with a special needs trust to help improve their quality of life.
