Disclaimer: With Medicaid, VA, and insurance regulations frequently changing, past blog posts may not be presently accurate or relevant. Please contact our office for information on current planning strategies, tips, and how-to's.
A special needs trust (SNT) can be a helpful tool for individuals seeking to find a way to support the future expenses of a disabled family member without jeopardizing their eligibility for government benefits. This type of trust allows the family member(s) to plan in advance for their loved one’s special care needs while remaining eligible for Medicaid themselves.
#1: What is a special needs trust?
A special needs trust is a type of trust that can be used to help beneficiaries of needs-based government programs, like Medicaid, preserve assets and maintain their eligibility for benefits. The trust is managed by an appointed Trustee who will administer the funds to pay for supplemental care needs of the beneficiary that are not covered by government benefits.
#2: What are the types of special needs trusts?
There are primarily two types of special needs trusts: a first-party SNT and a third-party SNT. To determine which trust is appropriate for your client, you will need to consider the ownership of the funds that will be used to fund the special needs trust.
#3: How is each type of special needs trust funded?
A first-party SNT may also be referred to as a “self-settled” trust or a “(d)(4)(a)” trust and is funded with assets or income that are owned by the beneficiary themselves. The SNT must be established and funded before the beneficiary turns 65 years of age. Proceeds received by the beneficiary from a personal injury settlement or inheritance are typically used to fund this type of special needs trust.
A third-party SNT is often referred to as a ‘supplemental needs trust’ and is usually funded with assets belonging to someone other than the beneficiary. An inheritance, large gifts, or proceeds from a life insurance policy can be used to fund a third-party SNT. Additionally, the assets that are transferred to a third-party SNT by a donor who is already receiving Medicaid benefits may be considered an exempt transfer for Medicaid purposes.
Learn More: Lookback Period vs. Penalty Period in Medicaid
#4: What can you spend special needs trust money on?
Funds from a special needs trust must only be used to supplement expenses for the primary benefit of the trust beneficiary. Supplemental care expenses that are not covered by Medicaid that can be paid from the trust proceeds include:
- purchasing a wheelchair
- dental services
- hearing aids
Additional expenses such as the beneficiary’s education, recreational activities, travel expenses, transportation, home modifications, or clothing may also be permitted expenses.
#5: Is a special needs trust required to include a payback provision to Medicaid?
To prevent the trust from being treated as an improper transfer for Medicaid purposes, a first-party SNT must name the state Medicaid agency as a primary beneficiary of the trust upon the beneficiary’s death. However, a third-party SNT is not required to include a payback provision to the state Medicaid agency.
To learn more about how you can preserve your client’s eligibility for Medicaid benefits while planning for the financial future of a disabled loved one, contact our office today!