Many families in southern California have members who suffer from one or more disabilities, and their ability to undertake gainful employment is severely limited. Anyone who is making an estate plan that will contain provisions for the care of persons with special needs must take into account a dilemma: disabled persons are eligible for financial assistance from state and federal programs; these programs include Medicaid, Social Security Disability Insurance and Med-Cal.
Unfortunately, most of these assistance programs place financial limits on an applicant’s eligibility. A generous bequest to a special needs person may inadvertently render the person ineligible for one or more of these programs by increasing the amount of the person’s assets over the governmentally imposed limits on eligibility. In California and many other states, estate planning attorneys have devised a tool that solves this problem. The tool is called a “special needs trust.”
The basics of an SNT
The premise of a special needs trust (SNT) is simple: if the trust document contains the proper limitations, assets placed in the trust are not counted in determining if a person is eligible for a government assistance program. The limitations consist mainly of provisions that limit the uses to which assets in the SNT can be applied. These uses include shelter, food, clothing and health care. An SNT can receive assets that will significantly assist the disabled person in the future without precluding eligibility for an important federal program such as Medicare or SSDI. The person establishing the trust must nominate a trustee who is charged with ensuring that trust assets are spent only for proper uses.
Types of SNTs
SNTs come in three flavors: first party, third party and pooled. A first party trust is funded by the beneficiary’s assets. Third party SNTs are funded with money or assets provided by a friend or family member. Pooled SNTs operate much like mutual funds. The assets from several SNTs are placed in a single trust managed by a single trustee. Combining trust assets in this manner gives the trustee greater purchasing power and increases the return on trust investments. The funds of each member of a pooled SNT are maintained in separate accounts.
Setting up an SNT
Anyone interested in establishing an SNT as part of an estate plan may wish to consult an experienced estate planning attorney during the planning process. A knowledgeable attorney can evaluate the situation, provide advice on the wisdom of an SNT, and if necessary draft the documents to create an SNT that meets state and federal retulations.