Special Needs Trusts

A special needs trust (or supplemental needs trust) is an important legal tool which holds assets to care for and protect persons with special needs while allowing them to continue to receive their government benefits. The trust is intended to supplement, but not replace, public benefits the trust beneficiary receives. Funds placed into a special needs trust will not subject the individual to any ineligibility periods for benefits and will not reduce benefits the individual receives from government programs.

Types of Special Needs Trusts

Self-Settled or First-Party trusts are funded with assets owned by the special needs beneficiary, or to which the special needs beneficiary is already legally entitled, such as litigation/settlement proceeds, an inheritance or a gift. This type of special needs trust is created pursuant to federal law and certain criteria must be met:

  • This trust is for the sole benefit of the special needs beneficiary.
  • The special needs beneficiary must meet the definition of disabled as defined by the social security act.
  • The special needs beneficiary must be under 65 years old
  • The trust must be irrevocable
  • The trust must be established by either a parent, grandparent, guardian or court
  • The trust must be funded with the special needs beneficiary own funds
  • The trust must contain a “payback” provision [a payback provision means that the trustee upon termination of the special needs trust must “payback” or reimburse the state Medicaid agency the amount paid out on the special needs beneficiary’s behalf].

Third-Party trusts are funded with assets of a person other than the special needs beneficiary. Typically, these trusts may be created when parents, grandparents or other relatives would like to leave assets upon their death for the benefit of the special needs beneficiary without jeopardizing their eligibility for public benefits. There are no age restrictions with these types of trusts and the beneficiary may be over age 65.

Pooled special needs trusts are often a practical alternative for small estates. Sub-accounts belonging to many beneficiaries are managed as a single entity, usually by nonprofit corporations. Funds remaining at the beneficiary’s death are typically divided between Medicaid and the nonprofit.

Medicaid Planning

The Institutional Care Program is a state/federal program that pays most nursing home costs for people who meet the eligibility requirements.

In determining whether a single individual will qualify for Medicaid in Florida the following criteria must be met:

  • At least 65 years of age or disabled
  • Citizen or permanent resident
  • Resident of Florida
  • Must meet the level of care that only a nursing home can provide
  • Monthly gross income under $2,199.00
  • Assets of less than $2,000.00 for at least one day of each month of Medicaid eligibility.

There are certain assets that are exempt from consideration and can be kept when applying for Medicaid. These include:

  • Homestead residence ($552,000 maximum)
  • Automobile
  • Whole life insurance with a cash surrender value of less than $2,500
  • Prepaid funeral plans

If assets are transferred during the five years prior to applying for Medicaid, otherwise known as the “lookback” period, an ineligibility period may be assessed and Medicaid benefits denied. The ineligibility period will begin when the individual would be otherwise eligible for Medicaid. That is why, a careful and full analysis should be done by an attorney prior to any transfers being made.

Planning ahead by consulting with an attorney will help preserve assets should placement in a skilled nursing facility become necessary. However, even when prior planning was not done, an attorney may still be able to help preserve assets and avoid costly mistakes.