Recent Law Soon to Allow Disabled Persons to Create Their Own Special Needs Trust

 

What is a Special Needs Trust?

Disabled persons who receive means-tested public benefits like Supplemental Security Income (SSI) and Medicaid must have no more than $2000 in countable assets in order to qualify (among other requirements).  A Special Needs Trust is used to prevent disabled persons from being disqualified from receiving means-tested public benefits if they are to receive the benefits of trust assets or a personal injury award.  

 

Types of Special Needs Trusts

There are three types of Special Needs Trusts – first-party special needs trust, third-party special needs trust, and pooled trust special needs trust.  For this blog, we will only be discussing first-party and third-party special needs trusts. A pooled trust is a group trust that is administered by a nonprofit for many beneficiaries.

The main – and most important difference – between the two types of trusts is that a third-party special needs trust cannot hold funds belonging to the beneficiary (the person with special needs).  So, if a person (under 65) with special needs wins a personal injury award, or inherits money directly, and not thru a bequest directly to a third-party special needs trust, they will need to have a first-part special needs trust established.  Another key difference between a first-party and third-party special needs trust is that because a third-party special needs trust holds assets that never belonged to the beneficiary, the government is not entitled to reimbursement from trust assets after the beneficiary passes unlike a first-party special needs trust.  Thus, a third-party special needs trust can pass assets on to other family members after the beneficiary with special needs passes.  Also, a third-party special needs trust can be established for the benefit of a person with special needs by anybody other than the beneficiary.  A first-party special needs trust must be established by the person’s parent, grandparent, guardian, or the court – but keep reading below for recent changes to this law.

 

Recent changes to Special Needs Trust Law

As it stands this very minute, the law presumes that a person with disabilities lacks the capacity to establish their own first-party special needs trust, and therefore a parent, grandparent, guardian, or the court must establish it for him or her.  This is about to change.  In December of 2016 the house passed H.R. 34, which includes the Special Needs Trust Fairness Act and makes a simple modification to 42 U.S.C. 1396p(d)(4)(A).  The president has promised to sign this into law.  The significant change that this law brings about is that it allows a disabled person with mental capacity to establish his or her own first-party special needs trust.   

 

So, to summarize:

  • A Special Needs Trust is used to prevent disqualifying a person receiving Medicaid and/or Supplemental Security Income (SSI)
  • A first-party special needs trust holds assets that will belong to the beneficiary (such as a direct inheritance, or lawsuit award)
  • A third-party special needs trust holds assets that never belonged to the beneficiary (such as an inheritance that is being given to the special needs trust directly)
  • A first-party special needs trust can soon be established by a disabled person under 65 years old with mental capacity instead of needing a parent, grandparent, guardian, or courts intervention
  • A third-party special needs trust can be established by anybody except the person with special needs
  • The government can seek reimbursement from a first-party special needs trust after the beneficiary dies, whereas this does not happen with a third-party special needs trust

 

If you have any questions, or need to establish a Special Needs Trust, please call me today and let’s start planning.

 

See lots of estate planning information on my website at: www.myestate-plan.com

 

 

William Daniel Powell (Dan)

619-980-2297

This email address is being protected from spambots. You need JavaScript enabled to view it.

 

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This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information

Also, please remember that I speak in generalities in my blog and on my website. There are so many different factors that can contribute and completely change the outcome that it would be impractical to discuss all of them here.

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Saturday, 24 January 2015 00:00

What is a Special Needs Trust Used For?

What is a Special Needs Trust Used For?

 

 

A Special Needs Trust is a form of a trust and is usually established as an irrevocable trust. The main purpose of the Special Needs Trust is to prevent a disabled or aged beneficiary from losing benefits that are "asset sensitive". Medi-Cal and SSI (Supplemental Security Income) are two examples. These types of benefits are called means tested Public benefits and they require that the recipient fall below a certain income level to qualify to receive those benefits. If, for example, somebody receiving these benefits were to get an inheritance in the form of a large lump sum they may lose their ability to collect these benefits.

A Special Needs Trust is usually used in one of two ways. The first method is in Estate Planning to provide for child with a disability (this is called a third-party Special Needs Trust) and the second is in litigation where the judgment might be so large as to cause the person receiving benefits to lose them. There is also something called a first party Special Needs Trust. Rules restricting who can establish the first-party Special Needs Trusts won’t be discussed here.

 

Funding the Special Needs Trust

 

Funding a third-party Special Needs Trust can be done by both the parents and the grandparents. Of special benefit to the Special Needs Trust is that a generation-skipping tax that might apply to the property given by the grandparent to the grandchild. It should be noted that there are rules as to who can create and who can fund a Special Needs Trust.  For a third-party Special Needs Trusts the beneficiary is not allowed to set up the trust nor can the beneficiary fund the trust. There are a few more requirements than this, but we won’t discuss them here.

 

Losing means-tested public benefits

There are many twists and turns regarding how and when you can lose means tested Public benefits and/or have stipends reduced. So many in fact that is not really practical to discuss them all within the confines of this blog. What we can learn and discuss is that as long as the beneficiary of a third-party Special Needs Trust cannot control how much or how often he or she is to receive funds – and as long as the beneficiary cannot gain access to the entirety of the funds – then the assets in the trust may not be used to reduce the beneficiary's access to means-tested Public benefits. This is because the funds in the trust in this situation are not considered a resource that is available to the beneficiary.

It should be noted and understood that SSI and Medi-Cal are not the same thing as Social Security and Medicare. Social Security and Medicare are not means tested.

 

See lots of estate planning information on my website at: www.myestate-plan.com

 

For more information on Special Needs Trusts, requirements, restrictions, and other aspects, please contact me or an attorney licensed to practice in your jurisdiction.

Thank you

My most important job is to listen to your wishes then suggest solutions.  Call today and let’s start planning!

 

Thanks for reading!

 

Dan Powell

1-619-980-2297

 

****Reminder****

Just like my website, nothing in this blog is intended as legal advice. If you need legal advice, contact an attorney licensed to practice in your jurisdiction. I am licensed to practice law in California.  Further, please remember that I speak in generalities in my blog (and on my website). There are so many different factors that can contribute and completely change the outcome that it would not be practical to discuss all of them here. This is why I speak in generalities. Thanks again for reading.

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This document is for informational purposes only.  Nothing in this is to be considered legal advice.  Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship.  If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction.  I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.

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