Enriching your loved one’s future

Proper beneficiary planning is an important first part of special needs financial planning and key to maintaining eligibility for valuable government benefits. Due to asset and income-based guidelines, leaving as little as $2,000 to your loved one could affect eligibility for Supplemental Security Income (SSI), Medicaid, and other means-tested benefits. Consulting a specially trained financial advisor¹ for guidance in planning a lifetime of care can be beneficial.

Three types of trusts

Special Needs Trusts (SNTs) are important tools to help caregivers and people with disabilities and special needs prepare a lifetime care plan. SNTs can be named as beneficiaries without impacting eligibility for means-tested government benefits. These trusts can take several forms, but three primary designs — determined by the ownership of the assets to be placed in the trust — are outlined below.

• A first party trust is put in place when the beneficiary’s own assets are used to fund the trust, such as an inheritance or an accident settlement. Assets in a third party trust will not compromise eligibility for important government benefits like SSI. Upon the death of the trust’s beneficiary, any assets remaining will be used to pay back the government for the cost of services provided from Medicaid coverage during their lifetime — called a payback provision. Any remaining assets after the Medicaid payback can go to a designated remainder beneficiary.
   
• A third party trust is funded with assets from someone other than the beneficiary, such as parents or family members who want to assist a person with a disability or special needs. Like a first party trust, assets in a third party trust do not affect an SSI beneficiary’s eligibility for benefits. However, third-party trusts do not include a payback provision for Medicaid coverage received, so remaining assets can be passed to other family members or a charity upon the death of the beneficiary.
   
• A pooled trust is established if a first or third party trust is not a cost-effective option, if a trustee cannot be found or for several other reasons. This type of trust is established and administered by a nonprofit organization that acts as the trustee, and allows beneficiaries to pool their resources for investment purposes, while still maintaining separate accounts for each beneficiary’s needs. A Medicaid payback provision exists with a pooled trust option upon the death of the beneficiary, and a portion of the remaining assets goes to the nonprofit managing the trust or, in some cases, to a named beneficiary.

Special needs trusts are legal documents that should be prepared by an experienced special needs attorney as part of an overall financial plan.

Funding a Special Needs Trust (SNT)

A variety of assets or combination of assets can be used to fund your SNT. Life insurance proceeds, stocks, bonds and mutual funds are examples of assets that can be used, providing the special needs trust is named as the beneficiary. Also, monetary gifts such as for birthdays and graduations can go into the trust.

Little things can make a big difference

Creating a third party SNT for the benefit of your loved one can help supplement their financial resources without jeopardizing eligibility for government benefits. However, it is important to include specific language in the SNT, such as legal guidance on how the funds should be used to enrich your loved one's life.

Protecting the future

SNT funds cannot be “withdrawn” by your loved one like from a bank account, without possible risk to government benefits eligibility; however, funds can be used as specified by the language in the trust for such things as recreation, vacations, home furnishings, vehicles and education. Although the SNT can be used for a variety of purposes, the funds shouldn’t be used for items covered by public assistance, such as²:

• Food, groceries and restaurant meals.
   
• Rent, mortgage and mortgage taxes (if required by mortgage terms).
   
• Basic utilities (e.g., heating fuel, gas, electricity, water, sewer and garbage removal).

Planning today for a brighter tomorrow

It is easy to get overwhelmed by the task of planning a lifetime of care. However, a specially trained financial advisor can help develop a clear roadmap for the future — outlining the steps you should take today for a brighter tomorrow.

Read the Special Needs Trust Case Study