Demystifying Special Needs Trusts in Michigan
If you have assets that you’d like to transfer to someone with an illness or disability who receives government benefits, you should consider a special needs trust. This can allow you to provide for your loved on and they will continue to receive benefits from the government or another organization that sets limits on their assets. For more information, contact a Rochester Hills MI special needs trusts lawyer at Sumner & Associates, P.C. today.
What Is a Special Needs Trust?
A special needs trust, otherwise known as a “supplemental needs trust,” is a legal instrument that is established for the benefit of a person who is receiving, or will be receiving, means-tested government benefits, such as SSI (Supplemental Security Income) and/or Medicaid (health care coverage for people with relatively little income and assets).
Although the people receiving the benefits of a special needs trust are often having some of their needs met by government programs, they often have additional needs. A special needs trust may be established to provide for those additional needs, such as medical and mobility equipment or vocational training. The trust may specifically state what it can be used for, or the trustee may determine how it is used. There are also limitations on special needs trusts funds established by Congress.
Who May Benefit From a Special Needs Trust?
Anyone with an illness or physical or mental disability who receives benefits from an organization that limits their assets can benefit from a special needs trust. Often, a child with special needs is the beneficiary of a special needs trust. A parent or other relative can set up a trust and name a trustee to dole out assets as needed. This allows the child to continue to receive benefits from the government while having other needs met by the trust.
Adults who have disabilities are often beneficiaries of special needs trusts as well. Adults who are on Medicaid, subsidized housing, Supplemental Security Income (SSI), and other programs, may not be able to receive this government assistance if they have more than a certain amount of assets. These programs monitor bank accounts and the values of houses and cars, prohibiting their beneficiaries from receiving significant amounts. However, a special needs trust can allow adults to continue receiving those benefits while still having access to trust assets.
Requirements of Special Needs Trusts
Because special needs trusts are set up to help people who are still obtaining government benefits, they have requirements established by Congress. The trust must be:
- An entity with its own Federal Identification Number (you cannot use your Social Security Number)
- Created to benefit someone under the age of 65
- For the benefit someone who is disabled according to Social Security standards
It is important to note that a person does not have to be receiving Social Security benefits, but they must be disabled according to Social Security standards. This can become a point of contention if the trust is challenged.
Example of the Use of Special Needs Trust
Let’s say that Grandma has a grandchild who was born with a disabling condition. Grandchild regularly needs expensive medical care. If Grandma’s will leaves money directly to Grandchild, Grandchild will have to use those inherited funds before being eligible for further government benefits. A good solution to this problem is for Grandma to have Grandchild’s inheritance paid into a Third-Party Special Needs Trust.
The trustee of the trust will be able to use trust monies to purchase goods and services (i.e., “supplemental needs”) for Grandchild that are not provided for through government benefits. As long as the trustee spends trust monies in an authorized fashion, Grandchild will continue to receive uninterrupted government benefits. Grandma can provide that if Grandchild does not survive the complete distribution of the Third-Party Special Needs Trust, the left-over cash and securities in the trust can be paid directly to other beneficiaries chosen by Grandma.
Another Example of the Use of a Special Needs Trust
Let’s say that Daughter receives government benefits, such as SSI and Medicaid. Mom dies with a Will that leaves monies directly to Daughter (i.e., not in a Third-Party Special Needs Trust). Daughter essentially has two choices. First, she can accept the inheritance and use it for any purpose, but if she does, her access to SSI and Medicaid will be restricted for a period of time. In other words, Daughter will be penalized for having received the inheritance and using it for any purpose she desired.
Second, the inheritance can be immediately deposited into a Self-Settled Special Needs Trust, otherwise known as a Supplemental Needs (d)(4)(A) Pay-Back Trust.
The Self-Settled Pay-Back Trust must provide that any monies left in the trust at the time of Daughter’s death shall be paid to the overnment to the extent of the value of the government benefits provided to Daughter during her lifetime.
While Daughter is living, the trustee may use trust monies to provide Daughter with goods and services (i.e., “supplemental needs”) that are not provided for through government benefits.
It is very important that only authorized expenditures are made from the Special Needs Trust; therefore, it is critical that you appoint a trustee who knows, or is capable of learning, the technical rules related to government benefits and Special Needs Trusts.
Important Rules That Must Be Adhered to During the Administration of Special Needs Trusts
It is very important that the rules regarding distributions from Special Needs Trusts are followed.
If the rules are not followed, you take the risk that Supplemental Security Income (SSI) and/or Medicaid benefits will be withheld for a period of time.
To ensure that benefits continue uninterrupted, it is very important that you follow the rules regarding distributions from the Special Needs Trust.
Generally, no trust monies should be distributed from the trustee directly to the beneficiary. When the trustee spends trust monies for the beneficiary’s supplemental needs, the trustee must make payment directly to the provider of the goods and services. For example, if trust monies are used to purchase a television for the beneficiary, the trustee must not give money to the beneficiary to make the purchase. Rather, the trustee must pay trust monies directly to the store.
Trust monies must only be used for “supplemental” needs. That is, monies shall only be used for goods and services not provided for through Supplemental Security Income (SSI) and/or Medicaid. Those programs are designed to provide for primary needs.
Special Needs Trust Monies
Special Needs Trust monies must only be used to satisfy supplemental needs. Following is a list of many, but not all, of the goods and services that typically may be purchased with Special Needs Trust monies:
- television set
- household furniture
- transportation expenses
- vehicle insurance
- exercise equipment
- trips and vacations
- eye glasses and contact lenses
- education expenses
- special dietary needs
- out-of-pocket medical and dental expenses
- life insurance premiums
- materials for hobbies
- tickets for events / movies
- musical instruments
- club memberships
- home improvements
- computer equipment
- conferences / seminars
- cable television
- telephone and radio
- entertainment and many, many more
Additional Information About Special Needs Trusts
Following are some links to websites that provide additional information regarding the use of Special Needs Trusts:
- National Alliance on Mental Illness: Special Needs Planning
- Estate Planning: What Parents of Children With Disabilities Should Know
- Illinois Yellow Pages for Kids With Disabilities
- Autism and PDD Network
Consult With Experienced Rochester Hills MI Special Needs Trusts Lawyers Today
You may know that a trust is the best option for you, but you may be unsure of what kind you need. Our Rochester Hills MI estate planning lawyers can evaluate your situation and help you set up a trust that works for you and your family. Call Sumner & Associates, P.C. today.