You Can’t Take it with You-Podcast

Special needs trusts are a hassle-free way to provide for your disabled loved ones without compromising their eligibility for SSI and other government benefits programs.

In most cases inheriting money or property from a deceased relative can be the relief individuals need to help overcome financial hardships and other trials. However, for those with disabilities, inheriting can bring stress and more financial burden than they can bring. 

More than 50 million men, women, and children live with disabilities and special needs. Many of us know and love individuals with disabilities, be it a spouse, child, or other family member. When you pass on you may want to leave them an inheritance to ensure that they’re cared for, even after you’re gone. 

Unfortunately, bequeathing money and other assets to an individuals with special needs isn’t as straightforward as it should be.

Understanding special needs trusts

How inheritance can affect benefits 

Many individuals with special needs or disabilities that impair their ability to work or function typically rely on government programs and benefits such as Supplemental Security Income (SSI) to be able to afford their day-to-day life. These programs have strict income gaps, including resource limits on the total amount assets an individual can have in order to continue to qualify. 

The resource limit for a individuals with disabilities is no more than $2,000. For couples, this threshold increases to $3,000. 

A sudden influx in assets such as a large inheritance has the potential to make individuals ineligible for more benefits. 

This is true even if that individual opts to refuse the inheritance, as the transfer of assets could hypothetically keep them from needing government assistance. The problem with this is that if an individual comes into an inheritance and as a result loses benefits, that inheritance won’t be able to have a marked improvement on that individual’s lifestyle (unless it is an incredibly large sum of money).

If an individual fails to report an inheritance they risk serious financial penalties and the possibility of having their SSI checks stopped for 3 years. 

How special needs trusts work

Special needs trusts are set up so that individuals can leave money and assets to disabled beneficiaries without affecting their eligibility for government benefits programs. These trusts are similar to other trusts in that there is a trustee and a beneficiary. 

There are three types of special needs trusts.

First-party trusts are irrevocable trust created with the disabled individual’s own funds, either from an inheritance or settlement. Individuals who are not born with disabilities but experience a disabling accident may also benefit from first-party special needs trusts. In these scenarios an individuals may become eligible for government benefits due to their disability. However, if they worked before the accident and had any type of savings, they may not qualify for assistance. A first-party trust allows that individual to benefit from their previously earned income while still being able to utilize government benefits programs such as Medicaid or SSI. 

Third-party trusts are trusts created by a parent or guardian using their own assets in order to take care of a disabled individual. These types of trusts can be either revocable or irrevocable. 

Pooled trusts are the final type of special needs trusts. Pooled trusts are established by nonprofit organizations.

How SSI works

According to the Social Security Administration, Supplemental Security Income (SSI):

“is a federal income supplement program funded by general tax revenues… it is designed to help aged, blind, and disabled people, who have little or no income; and it provides cash to meet basic needs for food, clothing, and shelter.” This includes bills like garbage, electricity, heating, and water.

The Social Security Administration offers a quick Benefit Eligibility Screening Tool to help individuals gauge if they are eligible to receive government benefits. 

How Trust funds can be used

Money from a special needs trust cannot overlap with what SSI benefits is meant to cover. That means that trust money is not meant to pay for things like rent, groceries, or clothing. 

When a trustee does use trust money to pay for the above listed items, this is referred to in-kind support and maintenance. If in-kind support and maintenance is provided to the beneficiary for these items, the beneficiary’s SSI benefits will be reduced. 

So if trust money can’t pay for those things, what can it pay for?

Trust funds are meant to enhance the quality of life of the beneficiary.

Many people find it helpful to think of trust fund money as “a parent’s pocket.” This saying means that trust funds can pay for things that a parent may be able to reach into their pocket and pay for. This means that funds in a trust can pay for things like medical care not covered by Medicaid or other programs, wheel chairs, transportation, entertainment (this can include electronics, concert tickets, etc.) personal property, and services. 

And since the trust is not considered assets owned by the disabled beneficiary, that individual remains eligible for government assistance and benefits. 

If you are considering establishing a Special Needs Trust for a loved one, consult with a qualified Tacoma estate planning attorney with The Narrows Law Group today. Our firm specializes in probate and trust administration and is ready to compassionately serve you.