Questions About Special Needs Trusts part I

A Trust is a written set of instructions for managing your assets – bank accounts, financial investments, real estate and so on. In this newsletter we will be discussing Special Needs Trusts.   A Special Needs Trust is designed to work for the benefit of a person with a disability, usually a son or daughter, brother or sister, or parent. It provides a set of instructions for managing assets set aside to help the disabled person without jeopardizing government benefits he or she might be receiving.  These trusts are relatively inexpensive to create, and are usually once-in-a-lifetime investments. For the next few weeks we will be addressing common questions.

Why use a Special Needs Trust?

A Special Needs Trust is a specialized legal document designed to benefit an individual who has a disability.  It is often a stand-alone document, but it can also be part of a well-constructed Revocable Living Trust.  Special Needs Trusts have been in use for many years, and were given an “official” legal status by the United States Congress in 1993.

Unlike other types of Trusts, Congress has created a federal law permitting the use of Special Needs Trusts. They are valid throughout the country, and nobody can question the validity as long as it meets the requirements written into the law.

A Special Needs Trust allows a person with a physical or mental disability, or an individual with a chronic or acquired illness, to have an unlimited amount of assets held for his or her benefit without disqualifying the person from certain governmental benefits.  Such benefits may include Supplemental Security Income (SSI), MediCal (Medicaid), vocational rehabilitation, subsidized housing, and other benefits based upon need.  A Special Needs Trust provides for extra care over and above that which the government provides.

What can it be used for?

A Special Needs Trust can help ensure that your disabled family member has every opportunity for a fulfilling and happy life.

According to the law, a Special Needs Trust can be used for “supplemental and extra care over and above what the government provides.” A properly drafted Special Needs Trust will work on a “sliding scale”; that is, in the impossible event that the government provides for 100% of the disabled beneficiary’s needs the Trust will provide 0%.  If there are no governmental benefits available, the Trust can provide 100%.  Most people fall somewhere along the scale, and the Trust supplements governmental coverage.

Although there are MediCal rules that say that the Trust cannot be used for housing or food, these rules have to be interpreted carefully. For example, there is no restriction on purchasing an accessible home or making accessibility adaptations to an existing home and having the Trust own or pay for them.  You should have a detailed discussion with an attorney about these rules and the ways they can be interpreted.