Special Needs Trusts and Medicaid

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 How Can a Special Needs Trust Assist in Medicaid Planning?

The rising cost of long-term care, whether provided in a nursing home or at an individual’s residence, is often unaffordable for many Americans. An increasing number of people depend on Medicaid to cover their long-term care expenses when they become elderly or have special needs.

However, Medicaid eligibility is subject to income limitations, which leaves many Americans in a difficult position. Special needs trusts have emerged as a solution to help people with special needs maintain Medicaid eligibility while addressing increased expenses.

What Is a Special Needs Trust and How Does It Work?

A special needs trust is a financial planning tool for those with special needs. Trusts involve a grantor, who transfers property to a trustee responsible for managing the property on behalf of a beneficiary. In the case of a special needs trust, the beneficiary is an individual with a qualifying disability or illness.

Qualifying disabilities or illnesses for a special needs trust are generally those that meet the Social Security Administration’s (SSA) definition of disability or fall under the eligibility criteria for receiving Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI).

These disabilities or illnesses can be physical, developmental, or mental in nature, significantly limiting the individual’s ability to function or work.

Examples of qualifying disabilities or illnesses may include the following:

  1. Intellectual Disabilities: Individuals with intellectual disabilities often experience significant limitations in intellectual functioning and adaptive behaviors. A special needs trust can help provide additional support for educational programs, therapies, and recreational activities that can enrich the individual’s life and enhance their personal development.
  2. Autism Spectrum Disorder (ASD): People with ASD may face challenges with social interactions, communication, and repetitive behaviors. A special needs trust can help cover the cost of specialized therapy, assistive technology, and other support services not funded by Medicaid, enhancing their quality of life and promoting independence.
  3. Cerebral Palsy: This group of disorders affects an individual’s movement, muscle tone, and posture. A special needs trust can help provide access to physical therapy, mobility aids, and other essential resources that can improve the individual’s ability to navigate their environment and engage in daily activities.
  4. Multiple Sclerosis (MS): MS is a chronic disease that affects the central nervous system. A special needs trust can help an individual with MS afford medications, therapies, and home modifications to improve their quality of life and help them maintain their independence.
  5. Mental Illnesses: Conditions such as schizophrenia, bipolar disorder, and major depressive disorder can significantly impact an individual’s ability to function in daily life. A special needs trust can help cover the costs of psychiatric care, counseling, and support services that can contribute to the individual’s well-being and stability.
  6. Traumatic Brain Injury (TBI): A TBI can lead to cognitive, physical, and emotional impairments. A special needs trust can help provide resources for rehabilitation, therapy, and adaptive equipment to improve the individual’s ability to function and engage in daily activities.

In each of these cases, a special needs trust can be invaluable in ensuring that the person with a qualifying disability or illness can access essential services and supports that Medicaid may not cover.

The assets placed in the special needs trust are not considered income for Medicaid purposes. This arrangement allows the person to qualify for Medicaid assistance while retaining access to the additional income.

The extra income can significantly enhance the beneficiary’s quality of life, as it can be used for expenses not covered by Medicaid. These expenses include vacations, entertainment, classes, and clothing.

How Are Special Needs Trusts Established?

Special needs trusts can be established by third parties, like parents or grandparents, or by individuals with special needs. These trusts can help individuals qualify for Medicaid while still earning an income or receiving a personal injury settlement.

Parents Establishing a Special Needs Trust

Parents of a child with special needs may create a special needs trust as part of their estate planning. They can fund the trust with assets such as cash, real estate, or investments to ensure their child receives financial support without jeopardizing their eligibility for public benefits like Medicaid.

Parents may also use life insurance policies, naming the special needs trust as the beneficiary, to provide financial resources for their child’s care after their passing.

Grandparents Establishing a Special Needs Trust

Similar to parents, grandparents can create a special needs trust for their grandchild with special needs. Instead of directly bequeathing assets to the grandchild through a will, which could disqualify them from receiving public benefits, grandparents can direct that the inheritance be placed in a special needs trust. Directing the inheritance into a special needs trust ensures that the grandchild benefits from it while maintaining their eligibility for Medicaid and other public benefits.

Individual With Special Needs Establishing a Special Needs Trust

Sometimes, an individual with special needs may receive a substantial sum of money, such as a personal injury settlement or an inheritance.

In this case, they can establish a self-settled or first-party special needs trust. By placing the funds in the trust, they can maintain their eligibility for public benefits while using the trust’s resources for supplementary needs not covered by Medicaid.

Upon the beneficiary’s death, a self-settled special needs trust is often subject to Medicaid payback provisions. The state may seek reimbursement for the benefits provided during the individual’s lifetime.

Generally, assets placed in a special needs trust must be irrevocable. Any remaining assets after the beneficiary’s death are subject to Medicaid repayment rules or must be donated to charity, depending on state regulations.

How Do Special Needs Trusts Impact Medicaid Planning?

Special needs trusts play a crucial role in Medicaid planning by allowing individuals with special needs to reduce their countable income, thereby maintaining Medicaid eligibility. By putting assets into a special needs trust, these assets no longer count as income for Medicaid purposes. This motion enables the individual to qualify for benefits while still enjoying the additional income provided by the trust.

Should I Consult an Attorney to Establish a Special Needs Trust?

Given the complexity of special needs planning and the variation in Medicaid rules across states, it is advisable to consult an experienced trust attorney when considering the creation of a special needs trust. They can provide guidance on the specific regulations in your state and help you develop a comprehensive plan to ensure the financial well-being of your loved one with special needs.

LegalMatch can connect you with experienced attorneys who handle special needs planning cases. By filling out LegalMatch’s online form with information about your legal needs, you can be matched with attorneys in your area with experience in special needs planning and Medicaid regulations.

You will save a lot of time and effort in searching for an attorney and ensuring that you are connected with an attorney who is knowledgeable about the specific regulations in your state.

LegalMatch’s attorney-client matching service is free to use, and you can review the profiles and ratings of matched attorneys before deciding to hire one. The client matching service can help you feel confident that you are choosing an attorney who fits your needs and goals.

Use LegalMatch to help you find an experienced estates attorney who can guide you through the complexities of special needs planning and Medicaid rules in your state so that you can develop a comprehensive plan to ensure the financial well-being of your loved one with special needs.

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