Why use a Special Needs Trust (or Supplemental Needs Trust)?

Special Needs Trusts[1] are used to protect assets for disabled[2] individuals while qualifying for means-tested benefits such as SSI or Medicaid. Although individuals applying for SSI and Medicaid, generally, must have less than $2,000 in countable resources, those assets[3] inside a properly structured special needs trust do not count. In other words, assets inside the trust are exempt when determining eligibility. This is critical because disabled individuals frequently have limited (or no) means of earning additional funds. Thus, whatever they have is all they will ever have to pay for things not funded by government benefits. Since the SSI benefit rate is low ($794 per month in 2021),[4] and Medicaid only reimburses health care providers, a beneficiary who is forced to spend down all of his or her assets before qualifying for Medicaid would be impoverished. To prevent this result, assets that could be used for ‘quality of life” goods and services can be preserved inside the trust.

Notes:

1. The phrase ‘Special Needs Trust’ usually refers to a self-settled trust. The phrase “Supplemental Needs Trust” usually refers to a third party trust.

2. An individual must be disabled within the meaning of 42 U.S. Code ยง 1382c(a)(3). That section provides: (A)Except as provided in subparagraph (C), an individual shall be considered to be disabled for purposes of this subchapter if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months. (B)For purposes of subparagraph (A), an individual shall be determined to be under a disability only if his physical or mental impairment or impairments are of such severity that he is not only unable to do his previous work but cannot, considering his age, education, and work experience, engage in any other kind of substantial gainful work which exists in the national economy, regardless of whether such work exists in the immediate area in which he lives, or whether a specific job vacancy exists for him, or whether he would be hired if he applied for work. For purposes of the preceding sentence (with respect to any individual), ‘work which exists in the national economy’ means work which exists in significant numbers either in the region where such individual lives or in several regions of the country.

3. When Medicaid refers to “assets,” it includes monthly income and resources. A trust can be funded with resources or with an an assignable income stream, which is why the term “assets” is used here.

4. The benefit rate is $794 per month in 2021. See http://www.ssa.gov/oact/cola/SSI.html.

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