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Dennis Christensen co-founded the Special Needs Alliance (SNA) in 2002. The SNA is an invitation-only, national, non-profit organization for attorneys with public benefits and disability law expertise. The SNA members are some of the most credentialed public benefits and disability law attorneys in the country.
For more information, please visit the SNA website.
A Special Needs Trust, also sometimes called a Supplementary Needs Trust, is a special type of Trust that is used to preserve the public benefit eligibility of a person who may receive a personal injury settlement or an inheritance.
Many public benefit programs like Supplemental Security Income (SSI) and Medicaid have limits on the amount of assets a person can have and continue to be eligible to receive benefits. The receipt of an inheritance or a personal injury settlement by a person can cause the loss of eligibility. This can be devastating because the loss of eligibility means the loss of medical coverage under those programs. It also means that the inheritance or personal injury settlement will be spent for medical care until the funds are exhausted instead of being used to enhance the recipient’s quality of life.
Simply giving away the inheritance or settlement proceeds to a family member to hold for the person who is receiving public benefits will not solve the problem. Any gift of assets from the person receiving public benefits will result in the loss of public benefit eligibility. Few individuals receiving public benefits can live without the medical coverage afforded by Medicaid if they lose their public benefits - no matter how much of an inheritance or settlement they receive.
There are two types of Trusts that are available to protect public benefit eligibility: the Self-Settled Trust and the Third Party Trust. The type of Trust used depends on whether the assets represent a personal injury settlement or inheritance, or whether the assets belong to a third party who wants to give assets to a person receiving public benefits during the third party’s lifetime or at the third party’s death.
A Self-Settled or “d4a” Trust is typically used when a person who is receiving public benefits, or who may need public benefits in the future, does not want to lose his or her public benefits eligibility because he or she has received or will be receiving an inheritance, a settlement, or a personal injury award. If the funds received are not put into a Special Needs Trust upon receipt of the inheritance or settlement proceeds, public benefits eligibility will be lost until all the funds are spent. As stated above, giving the assets away will not work, with few exceptions.
These Trusts are authorized by federal law and must adhere to strict requirements. Failure to follow all of the requirements will result in the Trust losing its ability to preserve public benefits eligibility with respect to assets placed into the Trust.
These Trusts may not be established by the person with disabilities. Only a parent of the person with disabilities, his or her guardian, or a Court can establish these Trusts.
The assets in the Trust can only be used for the sole benefit of the person with disabilities. Parents, siblings, children of the person with disabilities, or anyone else cannot receive any of the assets from the Trust to be used for their own purposes.
There are limits on how the assets can be spent. In addition to the requirement that the assets can only be used for the sole benefit of the person with disabilities, the Trust assets cannot generally be used for food or shelter for the disabled. Violation of this rule can result in the reduction or loss of public benefits. This can be devastating for a person who has medical expenses that are paid by Medicaid.
Upon the death of the person with disabilities, any assets left in the Trust at death must first be used to repay Medicaid for all medical expenses paid by Medicaid. If any assets remain after this repayment is made, the trustee will disburse the remaining assets in accordance with the provisions in the Trust. This is usually for family and friends.
This type of Special Needs Trust is used when a third person, typically a family member or friend, wants to leave assets to a person with disabilities in the third party’s Will or has established a Revocable Trust or wants to provide for assets to be used for the benefit of the person receiving public benefits during his or her lifetime.
With a Third Party Trust, the person with disabilities is named as a beneficiary. There is no limit as to the amount or type of assets left to the disabled person.
Most importantly, the terms of the Trust must include specific special language which makes clear that the assets in the Trust are to be distributed at the sole and absolute discretion of the Trustee. In addition, the Trust may not be used to pay for medical expenses that are provided by any public benefit program for which the person with disabilities qualifies.
Like the self-settled Trust, care must be taken regarding the types of goods and services purchased from the Trust assets and the manner in which the assets are paid to purchase the goods and services. Giving money directly to the person with disabilities can result in the reduction or total loss of public benefits for that month or perhaps longer.
The biggest difference between the two Trusts is that the third party Trust does not have to include a payback provision, and in fact, should not have such a provision. The third party Trust will simply provide that upon the death of the person with disabilities, any assets remaining in the Trust will be distributed to the persons or charities named in the Trust.
Both Trusts protect the public benefit eligibility of a person with disabilities. Instead of using an inheritance or personal injury settlement to pay medical expenses that would otherwise be covered by Medicaid, the inheritance and personal injury settlement can instead be used to enhance his or her life. Because many government-funded programs in the United States today provide substantial benefits, and in many cases are the only programs available to disabled persons, maintaining Medicaid eligibility is often critical.
In addition, both Trusts allow for the management of the assets of a loved one with disabilities who may be unable to manage his or her own money. Because of the very stringent rules and requirements imposed by the government regarding these types of Trusts, any person considering the use of these Trusts must consult an attorney who is experienced with these Trusts and understands public benefits law.
We at Dennis Christensen, P.A. can help you ensure that a Special Needs beneficiary retains public benefits, including SSI and Medicaid, while also benefitting from the assets in the Trust.
Not every personal injury settlement requires a Special Needs Trust. A lawyer who is experienced in Special Needs Trusts should analyze each situation to determine if there are alternatives to a self-settled Trust. In some circumstances, the loss of Medicaid eligibility is not as critical to the person with disabilities as it is in most cases.
As an experienced Special Needs Trust lawyer, as well as a founding member of the Special Needs Alliance (SNA), Dennis Christensen and his practice are dedicated to making your future needs and goals a reality. For a consultation with Dennis' firm, contact our law office today.
For more information and Frequently Asked Questions (FAQs) about Special Needs Trusts, click here.
Is Social Security or Medicare entitled to reimbursement or have a lien for benefits paid?
Can trust distributions be made directly to the trust beneficiary?
Can the trust assets be used for family members of the trust beneficiary?
Can the Special Needs Trust make rent payments for the person with disabilities?
What is the biggest disadvantage of a Special Needs Trust to protect litigation proceeds?
Can distributions from the Special Needs Trust be made for food, shelter and clothing?
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