Do you have a loved one receiving Supplemental Social Security Income (SSI), Medicaid or other means-tested public benefits? Or do you anticipate that they might in the future? This is important information to share with your estate planning attorney because if that person inherits from you, it could jeopardize his or her ability to qualify to receive his or her public benefits. Other common means-tested benefits include Section 8 housing, Veterans benefits, and Waiver services.
Options are available if you or someone you know is in this situation. Certain trusts may be used to hold that beneficiary’s inheritance separately preventing it from inclusion as a countable asset for their means-tested benefits. These trusts are commonly called special needs trusts, discretionary trusts or supplemental needs trusts.
Establishing a trust of this type allows the heir or beneficiary to continue to qualify for his or her benefits while also benefiting from the funds you left for him or her via a trustee who is monitoring the trust. The trustee has more limitations on what he or she can use the funds for in comparison to a traditional trust, but the trust assets will be available to improve your loved one’s manner of living. The trustee has complete discretion over the fund distributions, which must meet several criteria:
- for the sole benefit of the beneficiary;
- in the best interests of the beneficiary;
- otherwise unavailable from other resources and/or no other responsible party; and
- fiscally prudent.
Because of the special rules and the risk of triggering a beneficiary’s disqualification for public benefits, choosing a trustee familiar with the administration of special needs trusts is vitally important. Many times, such trustees appreciate having a family member involved to advise about possible distributions, thereby ensuring that the trustee has a personal connection to the beneficiary.
Special needs trusts may be included as part of a traditional revocable trust or may be created as a stand-alone trust. There is no limit on the amount of assets that can go into a special needs trust, but the trust must designate where the funds will go if they are not entirely used during the lifetime of the beneficiary.
For example, if $100,000 is put into a special needs trust for John Doe, but John Doe passes away when only $20,000 had been spent on him, the trust could instruct that the unused funds return to the traditional trust of that particular family, or perhaps to a nonprofit organization.
If you or someone you know has a loved one receiving or likely to receive means-tested benefits, Smith Haughey’s estate planning attorneys can help you determine which options are available to ensure that loved one does not become ineligible to receive his or her benefits.