A special needs trust can help your disabled parents maintain eligibility for Medicaid and Supplemental Security Income (SSI). If you are caring for your aging loved ones, you are probably struggling with how to make sure they get the care they need and still have enough money to last their lifetimes. You may be asking, “How can a special needs trust benefit my parents?”
A special needs trust can hold assets that can improve the quality of life for your disabled parents without making them ineligible for Medicaid or SSI. Even if they receive an inheritance or other windfall while they are receiving Medicaid or SSI, carefully using a special needs trust can preserve their eligibility. A special needs trust can also be a way to avoid the Medicaid penalty for transfers made within the five year window before applying for Medicaid.
Too many assets
It is a nice problem to have. However, if your parent has too many assets to qualify for nursing home or long-term care Medicaid assistance, a special needs trust can help. The trust can also help your parent qualify for Supplemental Security Income (SSI). If they follow all the state and federal legal requirements, your parent can use the funds for allowed amenities and not incur Medicaid penalties.
Who can fund a special needs trust for my parents?
Your parents can fund a special needs trust with:
- only their own assets (first-party trusts),
- their assets combined with the assets of others (pooled trusts), or
- the assets of friends or relatives (third-party trusts).
What are the rules for a first-party special needs trust?
A first-party special needs trust contains only the assets of the Medicaid beneficiary (your parent). Your parent must be younger than 65 and disabled to set up a special needs trust. Historically, only a parent, grandparent, guardian or court could create the trust. As of 2016, a disabled person can establish his own first party special needs trust. You can only use the assets in the trust for the benefit of your parent. First party special needs trusts must contain a payback provision. In that provision, you must designate the state that pays your parent’s Medicaid benefits as the primary beneficiary. When your parent dies, the state gets reimbursed for all medical assistance they provided during her lifetime.
When is a pooled trust useful?
Your parent can contribute their assets to a pooled trust, even if he is over the age of 65. Pooled trusts are operated by non-profit organizations such as the Alabama Family Trust. There is a master trust, and each participant’s sub-account. These trusts are also payback trusts. Therefore, after your parent dies, the state gets reimbursed for the benefits paid to him. The non-profit that operates the pooled trust divides any remaining funds with whomever your parent designated. But with proper planning, there will be nothing left to pay Medicaid back; see below!
How could a pooled trust allow my parents to save at least half of their assets (and maybe more) when they enter a nursing home?
Since Medicaid does not pay all the expenses of a nursing home resident in Alabama and because most parents would rather their children inherit their assets instead of spending them all on a nursing home, pleased know that they can accomplish these objectives by using the pooled trust as part of a “half-loaf” plan. Plan even if they have done no prior Medicaid planning. Saving anything from Medicaid is complicated and dangerous so do not try this on your own, you could be disqualified from receiving Medicaid forever. So, consult an experienced elder law attorney for help with this technique.
How could a third-party special needs trust benefit my parents?
Third-party trusts are not funded with your parents’ assets. Therefore, these trusts do not have the same state or federal restrictions as the other special needs trusts. Your parents never own these assets, so the assets do not disqualify them from receiving Medicaid, unless distribution results in your parents owning assets over the allowed amount. Third party special needs trusts require no payback provision, because there is no requirement you reimburse the state for Medicaid benefits paid to your parents.
AGED, Inc. “Types of Trusts.” (accessed June 29, 2017) https://trustaged.org/types-of-trusts/
Nolo. “Using a Medicaid Special Needs Trust When You Have Too Many Assets to Qualify.” https://www.nolo.com/legal-encyclopedia/using-special-needs-trust-when-you-have-too-many-assets-medicaid.html
Fechtman, Robert. “Your Client May Need A Special Needs Trust: Tips For Creating A Special Needs Trust For Disabled Clients.” https://www.americanbar.org/newsletter/publications/law_trends_news_practice_area_e_newsletter_home/specialtrusthtml.html
Branch Banking and Trust Co. “Special Needs Trusts and Government Benefit Programs.” https://www.bbt.com/wealth/retirement-and-planning/trusts-and-estates/special-needs-trusts-and-government-benefit-programs.page
French, Gregory. “Planning for Multiple Generations.” https://www.specialneedsalliance.org/the-voice/planning-for-multiple-generations-2/
Skelton, Jane. “The Most Basic of Special Needs Trust Presentations: 10 Questions and Answers.” https://www.stetson.edu/law/conferences/materials/media/5%20Skelton%20mat%20aa.pdf