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Special Needs Trusts For Disabled Persons
Families that include disabled children and adults must navigate a complicated system of laws concerning healthcare, housing, guardianships, and government benefits, all while providing the daily care and support that their disabled family member needs. The task is daunting. Family and friends can make the situation worse by directing an inheritance or gift to the disabled person. A gift could disqualify the disabled person from government health care and supportive service programs for which it took years to qualify. This discussion of special needs trusts may help both the special needs family and well-meaning friends and relatives to plan appropriately to enhance the quality of life of the disabled individual without endangering eligibility for government assistance.
The rules are not simple, but in general, the qualification to receive of certain government benefits is often restricted to non-wealthy applicants. I will very loosely refer to this group of benefits as "Medicaid." Alternatively, if the applicant has the means (money) to pay for his own care and support, then he will be denied Medicaid. (Makes sense!) Some essential supportive services for disabled persons are piggy-backed onto the services earned through proving a lack of assets and cannot be accessed without first qualifying for Medicaid. Therefore, undoing the Medicaid qualification can cause more damage than just the need to buy health insurance elsewhere. (Before the Affordable Care Act, it was also impossible to buy the health insurance due to pre-existing conditions.)
In order to provide a better quality of life for a disabled person, a Special Needs Trust can be set up to receive the funds which should not be given directly to the disabled person. These funds can be used to purchase items Medicaid does not provide. It is said that these funds "supplement but do not supplant" the government benefits.
Anyone can create a Special Needs Trust ("SNT.") If it is created by the disabled person himself, it is a "First Party Settled Special Needs Trust." Perhaps this is a wealthy individual who has just been diagnosed with Alzheimer's Disease. If the SNT is created by someone else, even the parents of a disabled person, it is called a "Third Party Settled Special Needs Trust." The difference is that the assets in a First Party Settled SNT must be paid to the government after the death of the disabled person. On the other hand, the assets in a Third Party Settled SNT can be given to family members or other beneficiaries after the death of the disabled person. If parents of a disabled child create an SNT, other friends and family can contribute money to the same trust.
This type of trust is very restrictive on how the money is spent. It cannot be used to purchase the items that Medicaid programs pay for, like basic medical care, housing and groceries. In most cases the funds are used for special gifts that enhance the quality of life of the disabled person. It also can be used for personal assistance services, assistive technology and health care not covered by Medicaid.
The SNT is separate from any estate planning trust the parents may have. It can be costly to set up: anywhere from $2,500 to $5,000. In view of this significant cost, in December, 2014 Congress enacted the Achieving a Better Life Experience Act (ABLE Act of 2014.) The ABLE Act allows for individuals to use a tax-free, state-based private savings account, referred to as an "ABLE account," for the care of people with disabilities. Like a Special Needs Trust, the funds in this ABLE account can be used to supplement government benefits for "qualified disability expenses" such as medical and dental care, education, employment training, housing, and transportation, while not disqualifying a disabled individual from governmental benefits.
The ABLE Act limits eligibility to those individuals with "significant disabilities" with an age of onset of disability before 26 years of age (although the account can be set up after this age.) The ABLE account can affect Supplemental Security Income (SSI) benefits if it exceeds $100,000. SSI benefits would be suspended but not terminated. In other words, the beneficiary of the account would not receive a check but would retain eligibility for the SSI program. The ABLE Account does not impact Medicaid eligibility.
Each state must draft regulations to implement this new account. On July 27, 2015, Illinois amended the State Treasurer Act to create the ABLE account program (15 ILCS 505/16.6 new.) However, the State Treasurer may not accept contributions for ABLE accounts until the Internal Revenue Service has issued its final regulations concerning ABLE accounts. The IRS issued proposed regulations in June, 2015 and is receiving comments until September. A public hearing will be held in October. It is hoped that these accounts will be available in Illinois by early 2016.
Note: This column provides general information related to the law designed to help readers understand their own legal needs. This column does not provide legal advice. Please consult a lawyer if you want legal advice. No attorney-client or confidential relationship exists or will be formed between the reader and the author of this column.
Special Needs Trusts For Disabled Persons
Families that include disabled children and adults must navigate a complicated system of laws concerning healthcare, housing, guardianships, and government benefits, all while providing the daily care and support that their disabled family member needs. The task is daunting. Family and friends can make the situation worse by directing an inheritance or gift to the disabled person. A gift could disqualify the disabled person from government health care and supportive service programs for which it took years to qualify. This discussion of special needs trusts may help both the special needs family and well-meaning friends and relatives to plan appropriately to enhance the quality of life of the disabled individual without endangering eligibility for government assistance.
The rules are not simple, but in general, the qualification to receive of certain government benefits is often restricted to non-wealthy applicants. I will very loosely refer to this group of benefits as "Medicaid." Alternatively, if the applicant has the means (money) to pay for his own care and support, then he will be denied Medicaid. (Makes sense!) Some essential supportive services for disabled persons are piggy-backed onto the services earned through proving a lack of assets and cannot be accessed without first qualifying for Medicaid. Therefore, undoing the Medicaid qualification can cause more damage than just the need to buy health insurance elsewhere. (Before the Affordable Care Act, it was also impossible to buy the health insurance due to pre-existing conditions.)
In order to provide a better quality of life for a disabled person, a Special Needs Trust can be set up to receive the funds which should not be given directly to the disabled person. These funds can be used to purchase items Medicaid does not provide. It is said that these funds "supplement but do not supplant" the government benefits.
Anyone can create a Special Needs Trust ("SNT.") If it is created by the disabled person himself, it is a "First Party Settled Special Needs Trust." Perhaps this is a wealthy individual who has just been diagnosed with Alzheimer's Disease. If the SNT is created by someone else, even the parents of a disabled person, it is called a "Third Party Settled Special Needs Trust." The difference is that the assets in a First Party Settled SNT must be paid to the government after the death of the disabled person. On the other hand, the assets in a Third Party Settled SNT can be given to family members or other beneficiaries after the death of the disabled person. If parents of a disabled child create an SNT, other friends and family can contribute money to the same trust.
This type of trust is very restrictive on how the money is spent. It cannot be used to purchase the items that Medicaid programs pay for, like basic medical care, housing and groceries. In most cases the funds are used for special gifts that enhance the quality of life of the disabled person. It also can be used for personal assistance services, assistive technology and health care not covered by Medicaid.
The SNT is separate from any estate planning trust the parents may have. It can be costly to set up: anywhere from $2,500 to $5,000. In view of this significant cost, in December, 2014 Congress enacted the Achieving a Better Life Experience Act (ABLE Act of 2014.) The ABLE Act allows for individuals to use a tax-free, state-based private savings account, referred to as an "ABLE account," for the care of people with disabilities. Like a Special Needs Trust, the funds in this ABLE account can be used to supplement government benefits for "qualified disability expenses" such as medical and dental care, education, employment training, housing, and transportation, while not disqualifying a disabled individual from governmental benefits.
The ABLE Act limits eligibility to those individuals with "significant disabilities" with an age of onset of disability before 26 years of age (although the account can be set up after this age.) The ABLE account can affect Supplemental Security Income (SSI) benefits if it exceeds $100,000. SSI benefits would be suspended but not terminated. In other words, the beneficiary of the account would not receive a check but would retain eligibility for the SSI program. The ABLE Account does not impact Medicaid eligibility.
Each state must draft regulations to implement this new account. On July 27, 2015, Illinois amended the State Treasurer Act to create the ABLE account program (15 ILCS 505/16.6 new.) However, the State Treasurer may not accept contributions for ABLE accounts until the Internal Revenue Service has issued its final regulations concerning ABLE accounts. The IRS issued proposed regulations in June, 2015 and is receiving comments until September. A public hearing will be held in October. It is hoped that these accounts will be available in Illinois by early 2016.
Note: This column provides general information related to the law designed to help readers understand their own legal needs. This column does not provide legal advice. Please consult a lawyer if you want legal advice. No attorney-client or confidential relationship exists or will be formed between the reader and the author of this column.
