Special Needs Trusts offer a variety of ways to plan for the security of your loved one with disabilities. Specifically, they allow you to transfer assets to a special needs friend or family member without compromising their ability to receive important government benefits. They also provide certain administrative advantages. Because Special Needs Trusts are a relatively new concept in both the legal and disability community, a competent attorney is crucial to making sure that they are properly set up and managed. Not only have our attorneys successfully created hundreds of these trusts for our families over the years, they also have personal experience dealing with the financial needs of special needs family members and understanding the requirements of government agencies such as the Social Security Administration and DSHS.
Why are Special Needs Trusts important?
A person loses SSI and Medicaid eligibility if he or she possesses more than $2,000 in assets. This means a person with disabilities who receives money through an inheritance or legal settlement will lose government benefits until the money has been spent. A Special Needs Trust enables a person with a disability to receive financial support from their family or other loved ones while remaining eligible for SSI and Medicaid. SSI pays for food and shelter, and Medicaid covers basic medical care. Funds in a Special Needs Trust can be used for anything not already covered by SSI or Medicaid. A Trustee is appointed and is in charge of distributing funds to third parties to pay expenses for the person with a disability. Funds cannot be distributed directly to the person with disabilities.
Self-Settled (Self-Funded) Special Needs Trusts
Any person with disabilities under the age of 65 may place assets in a Special Needs Trust to preserve Medicaid and SSI eligibility. However, a self-settled trust is subject to a “payback” rule which requires that the state be reimbursed for medical benefits before any leftover funds can be passed to heirs. Typically these trusts are used for surprise funds: inheritances, personal injury settlements, etc.
Third-Party Settled (Third-Party Funded) Special Needs Trusts
Family or friends may establish a trust for the benefit of a person with disabilities who is under the age of 65. The “payback” rule does not apply to Special Needs Trusts funded by third parties. Most often these are a part of an estate planning package. These trusts can be "living," which means that you and others can contribute to them now; or, they can be "testamentary,” meaning that nothing is put into the trust until the parent(s) passes away.
DD Life Opportunities Trusts
In 1999, the Washington State Legislature passed a bill to establish the Developmental Disabilities Endowment Trust Fund. The Life Opportunities Trust, as it’s now called, is managed by The Arc of Washington State. They provide information, enrollment assistance and the administration of individual trust accounts. The trust combines the funds of multiple people with disabilities. Both self-settled and third-party trusts are available, although the self-settled trusts have both a Medicaid payback rule and a reversion of any remaining funds to the State of Washington. Third-party trusts cannot accept any real property (real estate), however there is no associated payback or reversion of funds to the State.
One advantage of these pooled trusts is that they can be started at little or no cost. One disadvantage is that you lose control of the investment of the money that you and other contribute to the Trust. Also, with an attorney-written Trust, you can directly write checks out of the trust, yourself. With the DD Life Opportunities Trusts, you must contact Olympia to disburse the funds for you.
Redinger Law: Special Needs Trusts
REDINGER LAW OFFICES, PLLC
Denise Redinger ♦ Heidi Nagel
ATTORNEYS AND COUNSELORS AT LAW