If a loved one is disabled, elderly, or otherwise unable to manage his finances, what can you do to help? These individuals often turn to state or federal assistance programs to cover their basic living expenses. However, there are often expenses that public benefit programs do not cover. Further, these programs have strict qualification limits. As such, if your loved one comes into money due to a family death or other life event, it could cost him his much-needed public assistance benefits.
Fortunately, the law supplies a remedy in the form of special needs trusts. Here, we will explain what this type of trust is, how it works, and why it is necessary.
What Is A Special Needs Trust?
At its most basic level, a trust is a legal instrument designed for the safekeeping of assets. Assets like cash, investments, or property can be held in a trust until a specific time or condition warrants distribution. A trustee – the person or entity who is designated to manage the trust – must distribute the assets within the trust in a way that is consistent with the beneficiary’s best interests. This includes authorizing any change to or withdrawal from the trust.
A “special needs trust” or SNT is a specific type of trust that provides a supplemental benefit to a disabled or elderly beneficiary without disqualifying the individual from any public assistance benefits.
How Does A SNT Work?
SNTs are used to fund expenses outside the scope of what is covered by government assistance. The goal is to give the beneficiary access to those things that will enhance the beneficiary’s quality of life. An SNT allows the beneficiary to continue to receive public assistance, while also having a source to fund other goods and services that public assistance does not cover.
By holding the assets of a disabled or elderly individual in an SNT, any increase in assets or income will supplement the beneficiary’s circumstances, rather than potentially disqualifying them from the public assistance programs on which they rely. Many of these individuals depend on programs like Medicaid, Social Security Income, and similar resources to cover basic living expenses. SNTs are intended to fund those expenses outside of the basics that are covered through other means. Furniture, vacations, specialized medical procedures, and sporting equipment are just a few things an SNT can fund.
What Warrants the Use of A SNT?
SNTs were created by federal law to protect Medicaid and SSI recipients. Because public assistance programs impose strict limits regarding assets and income, the SNT keeps the assets of public assistance recipients from barring additional benefits.
For example, if a benefits recipient receives a lawsuit settlement, inheritance, or other monetary gift or award, this change in assets could disqualify him from receiving further benefits. The SNT covers the percentage of the person’s financial needs that public assistance payments do not cover. The assets held within the trust do not count, essentially, to qualify (or bar) the person for public assistance.
In other words, you may gather your loved one’s assets into an SNT to “shield” them from governmental scrutiny, thus effectively allowing your loved one to still qualify for public assistance.
Even if the beneficiary does not currently receive government assistance, an SNT can serve as a supplement to benefit an individual who is unable to manage his finances. Should the beneficiary need to pursue public assistance in the future, the SNT can serve as an immediate resource to fund your loved one’s lifestyle and cover his expenses during the often-lengthy application process for most benefit programs.
Further, parents of children with special needs can benefit from setting up an SNT, which will ensure that their children have the resources to meet their future needs without risking the ability to receive public assistance benefits. In these cases, the SNT provides a means to pay for goods and services not covered by these benefits. If a parent simply left assets to a disabled child through a standard will, such inheritance could disqualify the child from receiving any government benefits.
How Is A SNT Created?
There are three types of SNTs in North Carolina:
A Self-Settled SNT
The self-settled SNT and the pooled SNT are both funded by the beneficiary’s assets. The name is misleading, however, as a self-settled SNT must be established for the beneficiary’s benefit by a parent, grandparent, legal guardian, or a court and not the beneficiary himself.
A “Pooled” SNT
Unlike the self-settled trust which is only an option for beneficiaries under the age of sixty-five, the pooled SNT does not have any age restriction and it can pool the resources of many parties, including the beneficiary, to fund it. Pooled SNTs must be managed by a nonprofit association. Medicaid must be reimbursed with any remaining funds in the trust for all self-settled trusts, regardless of the source of the funding.
A Third Party SNT
Finally, third-party SNTs are funded by someone other than the beneficiary. A testamentary trust created by a parent for the benefit of a special needs child to take effect upon the parent’s death is one example of a third-party SNT. These trusts do not have an age restriction and there is no requirement to repay any Medicaid expenses upon the death of the beneficiary.
It’s vital that the person or entity who creates the trust – or its legal representative – crafts the language of the trust carefully to ensure it is valid and will withstand scrutiny. Ideally, the SNT will be created before the beneficiary reaches the age of 65.
Contact Our Experienced Estate Planning Attorneys
At Wilson Ratledge, our attorneys assist clients in preparing and executing documents that help them remain financially secure and sound. We regularly help clients set up special needs trusts to ensure their family members are sufficiently protected. For assistance, contact one of our experienced North Carolina estate planning attorneys today at 919-787-7711 or via our contact form below. We look forward to serving you.