Special Needs Trust Overview

What is a Special Needs Trust?

A Special Needs Trust is a trust, authorized under federal law, that holds the funds of a disabled beneficiary and allows the beneficiary to qualify for means tested public benefits like Medicaid and Supplemental Security Income (SSI). Were those same assets owned directly by the disabled person, they would disqualify the beneficiary if his or her assets exceeded the $2,000.00 SSI (Supplemental Security Income) limit for non-exempt assets. Because the government is allowing benefits for someone who otherwise would not qualify there is a provision compelling the repayment of state Medicaid services for any beneficiary who dies after the age of 55, if there are still funds remaining in the trust at his or her death. A Supplemental Needs Trust has similar provisions but it is funded with someone else’s money (typically a parent or grandparent). Since there is no legal requirement to leave money to your disabled child, there is no payback provision in a supplemental needs trust. A Special Needs Trust needs to be created and funded before the recipient reaches age 65. A child with special needs can generate multiple expenses.


Why Fund a Supplemental Needs Trust?

If you are funding a Special Needs Trust, there is little choice in how much you can put in. To obtain Medicaid Waiver services for home and community based services, an individual (different if you are married or have children under age 21) can only have $8,000.00 (less if on SSI). You must spend down your assets to that amount or less or you will not receive the services. Putting the excess funds into a Special Needs Trust allows immediate eligibility and the future use of the funds for special and supplemental needs. Funding a Supplemental Needs Trust is helpful because the parent can allocate funds necessary to serve the beneficiary’s most important needs.


What Expenses may a Child with Special Needs Encounter?

Exactly how many expenses a child with special needs has will depend on the needs and lifestyle of the family and the child’s capabilities. If the plan is for the child to live in a private group home, there are a couple of options. Some involve the purchase of a home, which could range from $150,000 to $600,000. In addition, there is a monthly maintenance fee of roughly $500-2,000 a month that covers food and utilities. And then there is staffing which, again, depends on the needs of the disabled person. In addition, many families want to build into the budget eating out once a week or so, electronics (a new iPad every few years for example), a gym membership, etc. If the child lives in a group living situation the costs could be much lower but other ancillary costs for comfort and special therapies that are not covered by public sources need to be considered regardless.


Why have a Special Needs Trust?

When parents pass away, this budget is naturally going to be bigger because we now need to consider replacing the things the parents did. For example, “care coordination” and advocacy are huge undertakings that parents perform. Of course, no one will be able to replace the parents fully, but the trust can often replace some of the more vital services if properly funded. Special Needs Trusts are frequently funded while the parents are alive. Supplemental Needs Trusts are typically funded after the parents’ passing. These trusts are their own legal entities they will need, which means that the trust now needs to file a tax return each year and pay taxes (at higher trust levels). There are also legal and trust administration expenses to consider. Even if a family member is the sole trustee, it may be wise for the trustee to consult an attorney each year to make sure nothing is done that could jeopardize benefits.


What is the Child with Special Needs Eligible for Receiving?

Fortunately, public benefits can usually offset many of the above-mentioned costs. For example, the child may be eligible for Supplemental Security Income (SSI), as well as a Section 8 housing voucher and SNAP food assistance. When the parents retire, SSI is typically replaced with Social Security Disability Insurance (SSDI) if the disabled beneficiary’s disability developed before the age of 21, which is one-half the parent’s payment. When the parent passes away, this payment becomes three-quarters of that amount. Adult Family/Foster Care may be available as well, depending on the group housing situation. It’s also possible that the child is working and bringing in additional income (minus whatever benefits may be offset by this income).


Why plan Ahead for a Child with Special Needs?

In conclusion, the takeaway is that it is essential to do a complete analysis of the future costs to provide for a child with special needs so that the parents can begin saving and making adjustments in their planning today. This analysis isn’t a perfect science and is a moving target at times, but ideally it can help guide families and their advisors towards creating a thoughtful plan that will fund the child’s most important needs.

About The Author

Named One of the Main Line’s Top Elder Law Attorneys
by Main Line Today
Robert M. Slutsky has practiced Elder Law since 1992 and was one of the area’s first elder law attorneys. Rob Slutsky advises clients on Medicaid and Asset Protection Planning, Guardianships, Wills, Trusts, Powers of Attorney, Estate Administration, Special Needs Planning and General Estate Planning. He has represented for profit and non-profit elder care providers and the Pennsylvania Department of Aging. Rob Slutsky has been the solicitor for the Montgomery County Office of Aging and Adult Services, the Area Agency on Aging for Montgomery County, for more than 15 years.