What is a special needs trust?
A special needs trust (also called a supplemental needs trust) is a planning tool for a person ("the beneficiary") who receives government benefits that are based on financial need. The special needs trust is a separate fund that can improve the beneficiary's quality of life by paying for things that are not covered by his or her government benefits. Most special needs trusts are set up by a parent, grandparent, or other family member as part of his or her will or revocable living trust. Someone other than the beneficiary can create an irrevocable special needs trust to receive gifts at different times or from several people.
Who can be helped by a special needs trust?
A person who is unable to work because of a physical or mental disability often qualifies for cash benefits, medical benefits, and/or other benefits paid by a government agency. Some of the programs limit the amount of money and property that the person can own and still qualify for benefits. Examples of benefit programs with financial resource limits are: Supplemental Security Income (SSI); Medicaid (sometimes called Oregon Health Plan); and food stamps. If you leave money or property directly to a person who receives those types of benefits, the inheritance may put the person over the applicable resource limit and cause him or her to lose the benefits that pay for basic needs such as food, shelter, and medical care. However, if you leave the money or property in a special needs trust, the assets will not be counted and will not affect the person's future eligibility for government benefits.
What are "special needs"?
Special (or supplemental) needs are items and services that add to the person's quality of life but that are not food or shelter or medical care covered by government benefits. Some examples of special needs are: Transportation; adaptive equipment; recreation; supplies for hobbies; telephone equipment and service; computer equipment, software, and internet access; television equipment and cable service; books, magazines, and newspapers; private health insurance; private case management; counseling; education and training; furniture and housewares; clothing; hair and nail care; and supplemental health care not covered by a government benefit program.
Are there things a special needs trust can't pay for?
Most special needs trusts are written to limit what the trustee can pay for. A special needs trust with a strict distribution standard instructs the trustee not to give money to the beneficiary and not to pay for food or shelter or medical costs that are covered by government benefits. That standard was designed to help the trustee avoid causing the beneficiary's government benefits to be reduced or terminated. Some government benefit programs count the value of food or shelter provided by a special needs trust or by someone other than the beneficiary as in-kind (non-cash) income to the beneficiary.
Note: The federal regulations for the SSI program changed in March 2005. The value of clothing bought by the trustee of a special needs trust for the beneficiary of the trust is no longer counted as in-kind income and will not affect the beneficiary's SSI benefits.
Who will be the trustee?
When you create a special needs trust in a will or a revocable living trust, it does not take effect until after you die. You can name a family member or another individual to serve as the trustee. If there will be enough money in the special needs trust, a bank or a trust company may be willing to be the trustee. The trustee will have to know about the beneficiary's government benefits, income and resources, living situation, and interests. The trustee will also be responsible for learning about how payments from the trust are likely to affect the beneficiary's government benefits and for keeping good records.
What can be done if the person receiving government benefits gets an inheritance directly?
A person who has been receiving government benefits and who gets an inheritance will be disqualified from continuing to get benefits if the inheritance puts him or her over the applicable resource limit. The person will also be disqualified if selling a home or settling a personal injury case puts him or her over the resource limit. If the person will continue to need government benefits, it may be possible to protect his or her eligibility by creating a special needs trust with payback provisions for the excess resources. The payback special needs trust has to meet very specific requirements, including the following:
- The beneficiary must be under 65 years old when the trust is created and funded;
- The beneficiary must be disabled according to the definition used to determine eligibility for Social Security disability and SSI benefits;
- When the beneficiary dies, any assets left in the trust must be used to pay back the Medicaid assistance received by the beneficiary; and
- The beneficiary cannot create the trust. In most cases, it will be necessary to have the court appoint a conservator and approve the trust. In some cases, a parent or grandparent may be able to create the trust.