Financial planning for loved ones can be a daunting task for any family, especially those who have relatives with disabilities. Persons with disabilities are living longer and more fulfilling lives than ever before. For this reason, it is important for parents and/or guardians to prepare a financial plan for them once they are no longer able to handle their care. One financial tool used by many to arrange for such future care is a trust.
A trust is a legal arrangement where one party holds property for the financial benefit of another party. In other words, it can be thought of as a type of holding area, where a grantor, the party who creates the trust, will hold their assets before they distribute them to designated beneficiaries. Grantors of a trust can be a parent, grandparent, legal guardian or the court. Furthermore, there are many different types of trusts that can be used for varying family circumstances.
Special Needs Trusts (SNTs) are a complex type of trust, used by many families to provide financial stability for relatives with disabilities and special needs. These trusts are primarily aimed to preserve a relative's eligibility for government aid while allowing them to maintain a higher standard of living than might be possible with government aid alone.
SNTs are an exempt trust under current Medicaid rules, meaning the government does not include the trust payouts when calculating a recipient's need for government aid. Since SNTs are considered an exempt trust, the trust must benefit someone under the age of 65 and the beneficiary must meet Supplemental Security Income (SSI) disability criteria. Supplemental Security Income-a federal program funded by general tax revenues-is used to provide cash for basic needs of the disabled, blind and elderly. The basic criteria are as follows: U.S. citizenship, asset level below $2,000 and a limit on received income (which varies by area).
SNTs are especially tricky because they are not yet a standardized area of law. As a result, it is important to consult with an attorney who has considerable background in special needs planning.
In preparing for an SNT, it is important to consider the many future factors that could arise in long term care. Some of these factors will include medical expenses, emotional and social needs, and future employment opportunities. In addition, it is important to know eligibility requirements for available government aid and how certain life events alter a beneficiary's eligibility.
Choosing an appropriate trustee is an important step in developing a long term care plan. A trustee is a person or entity who manages and distributes the assets in a trust. Trustees of SNTs can be whomever the grantor deems worthy of providing care and supervision to their loved one. Trustees range from friends and relatives to corporate and charitable organizations.
Trustees can also be grantors during their lifetime; when the grantor becomes incapacitated or passes away, the pre-established trustee will commence the arrangements of the trust. Corporate trustees with SNT experience and devoted family members are typically designated as trustees because they make the most informed and appropriate distribution decisions to help save funds for future use.
Maximizing the value and benefits of an SNT can be a technical and complex task. Careful planning and strategizing with an attorney is the best way to manage financial resources for a long term care plan. The following are a few of the many ways to increase the level of funds in one's special needs trust.
Filing for Supplemental Security Income (SSI) enables access to Medicaid-funded services and is a step that should be taken immediately; this sets aside other potential funds for supplemental long term care. Other special circumstances to consider are retirement funds and child support payments. If either of these situations is applicable, it is in the best interest of the SNT for retirement benefits to be transferred to other beneficiaries and child support payments to go toward regular family expenses. Cash assets and grantor's excess funds should be transferred to the SNT instead. It is important to note that an individual's house can be transferred as a gift to a qualifying beneficiary and be considered exempt from Medicaid transfer penalties.
In some cases, family members choose to leave their assets directly to individuals with disabilities and in these circumstances it is best to establish an SNT where family members can to transfer assets for the beneficiary directly into the trust. This will increase the funds within the SNT and educate family members of financial options they have in providing long term care for their loved one.
Lastly, ensuring funds are transferred properly into the SNT is a vital step in creating a long term plan. One potential risk to SNT funding is pre-death incapacity on behalf of the grantor. Poor planning and judgment can result in the lack of funds for a special needs beneficiary. Estate planning that analyzes and directs one's assets at death will help ensure that specific funds will be transferred into the SNT.
Ultimately, knowledge is the key to creating a long term care plan for someone with special needs. Although complex, an SNT is an excellent way for families to ensure the financial stability and care of a loved one with disabilities.