What is a special needs trust?

A special needs trust usually is created for the benefit of a person (“the beneficiary”) who is disabled and who receives government benefits based on financial need. The main purpose of a special needs trust is to improve the beneficiary’s quality of life while not making him or her ineligible for government benefits. Most special needs trusts are set up by the beneficiary’s parent, grandparent, or other family member as part of the relative’s will or revocable living trust. This type of special needs trust is called a third party trust because it is created by and funded with assets belonging to a third party, meaning someone other than the beneficiary.

Who can be helped by a special needs trust?

A person who is unable to work or whose ability to work is severely restricted due to physical or mental disability often qualifies for cash benefits, medical benefits, and/or other benefits paid by a government agency. Some government benefit programs limit the amount of money and property that the person can have and still qualify for benefits. Examples of benefit programs with income and resource limits are: Supplemental Security Income (SSI); Medicaid related to SSI (OSIPM); and SNAP (formerly called 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 asset limits and cause the person 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 needs are items and services which add to the person’s quality of life but are not food or shelter or medical care covered by government benefits. Some examples of special needs are: Phone, cable and internet service; television, computer, and electronics; transportation, including bus/rail passes and expenses for a vehicle; adaptive equipment; clothing; hair and nail care; furniture and household items; training and classes; recreation; entertainment; vacations; private case management; counseling; guardianship and trustee fees; private health insurance; and supplemental health care not covered by the beneficiary’s government benefits.

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 covered by government benefits. That distribution standard is intended to help the trustee protect the beneficiary’s government benefits from being reduced or terminated. Some government benefit programs count the value of food or shelter provided by a special needs trust or by another third party as in-kind (non-cash) income to the beneficiary and will reduce the benefits when there is in-kind income. There are some regional and state variations.

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 (but not the beneficiary) to serve as the trustee. Working with a pooled special needs trust administered by a nonprofit organization may be an option if it is difficult to choose a trustee. The trustee will need information about the beneficiary’s government benefits, income and resources, living situation, and interests. The trustee also will be responsible for learning how payments from the trust are likely to affect the beneficiary’s government benefits, for keeping good records, and for making annual reports. Administrative expenses, including legal advice to help the trustee administer the special needs trust, are usually paid out of the money in the special needs trust. The attorneys at The Elder Law Firm prepare special needs trusts for clients and advise trustees who are administering special needs trusts.

What can be done if the person receiving government benefits gets an inheritance directly?

A person who has been receiving government benefits will stop being eligible for those benefits if an inheritance puts him or her over the applicable asset limits. Selling a home or settling a personal injury claim also can put the person over the applicable asset limits. If the person will continue to need government benefits, it may be possible to protect his or her eligibility by creating a different type of special needs trust and transferring the excess assets to the trust. This type of special needs trust includes payback provisions and is often called a self-settled or payback trust. The requirements for a payback special needs trust include 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 (SSDI) and SSI benefits;
  • When the beneficiary dies, assets left in the trust must be used to pay back any state that has paid Medicaid assistance for the beneficiary; and
  • The beneficiary cannot be the trustee.

A payback special needs trust can be created by the beneficiary or by someone who has legal authority to act for the beneficiary (for example, a person acting under a financial power of attorney which authorizes the agent to create the trust). If the beneficiary is financially incapable, it often is necessary to have the court appoint a conservator and direct the conservator to create the trust. The attorneys at The Elder Law Firm prepare payback special needs trusts for clients and help clients establish payback special needs trusts through the court process.

What is an ABLE account?

Setting up an ABLE (Achieving a Better Life Experience) account through a state ABLE program can be a lower cost alternative to a special needs trust for a qualified person with disabilities. Getting an inheritance or a gift, [receiving a settlement for a personal injury claim, or working and saving money can cause a person with disabilities to exceed the asset limits for government benefits based on financial need. If the person will continue to need those government benefits, it may be possible to protect his or her eligibility by creating an ABLE account. More information is available on the Oregon ABLE account program’s website, http://oregonablesavings.com. Many state ABLE account programs permit residents of other states to open accounts.

Who can have an ABLE account?

A person who became disabled before age 26 can have one ABLE account. The account can be opened by the person with disabilities (the beneficiary), by the parent of a beneficiary who is under age 18, by a guardian or conservator appointed by the court for the beneficiary, or by an agent authorized under a power of attorney. A beneficiary who opens his or her own ABLE account will control the account. Funds from the ABLE account can be used to pay for qualified disability expenses. Those expenses may include employment training and support, housing, assistive technology, transportation, and personal support services.

How does having an ABLE account affect government benefits?

Money in the ABLE account is not counted as a resource in determining eligibility for SSI benefits if the balance is not over $100,000. There is a higher maximum for Medicaid (OSIPM) benefits. There is a limit on how much can be deposited to the ABLE account each year. For 2018, the limit is $15,000. A beneficiary who is employed can contribute an additional amount. When the beneficiary dies, the balance left in the ABLE account must be used to pay back any state that paid Medicaid assistance for the beneficiary.

What is the difference between an ABLE account and a special needs trust?

There are a number of differences. The cost of setting up an ABLE account is likely to be significantly less than establishing a special needs trust. An ABLE account can give the beneficiary more control and more choices. However, there are strict limits on the amounts which can be deposited to an ABLE account each year. The Medicaid payback requirement applies to all of the assets in the ABLE account, including gifts by relatives. Many families will choose to include both an ABLE account and a special needs trust in their planning. The attorneys at The Elder Law Firm have the experience needed to help clients determine which options fit their specific situations.