Special needs trusts are used to provide protection and security to disabled persons who may need supplemental income or more financial independence.
At JacksonWhite Law, we can help you determine if you or your loved ones are eligible for a special needs trust, and create a plan of action that puts your family’s security front and center.
Types of Special Needs Trusts
Self-Settled Special Needs Trusts
A self-settled special needs trust is one that is established with the beneficiary’s own assets. This type of trust is most commonly used in situations where a recipient of public benefits receives a personal injury settlement or inheritance that would otherwise disqualify him from benefits.
While receiving a large sum of money would ordinarily disqualify an ALTCS or SSI recipient from eligibility, special needs trusts provide a way in which recipients can keep their settlement or inheritance, yet remain eligible for benefits.
A complex web of rules controls self-settled special needs trusts. First off, although this type of trust is established using the beneficiary’s money, a person other than the beneficiary must establish the trust.
Most times, this person must be a court or court-appointed guardian, although the beneficiary’s parent or grandparent may also establish the trust in certain situations. Also, self-settled special needs trusts must generally include what is called a payback provision, which repays state agencies for benefits upon the beneficiary’s death.
For instance, upon a trust beneficiary’s death, a Medicaid special needs trust repays ALTCS for benefits. Only after repaying ALTCS is the remainder of the trust assets released according to the terms of the trust. While these rules are demanding, an Arizona special needs trust attorney can help trustees sort everything out.
Third-Party Special Needs Trusts
Third-party special needs trusts are different from self-settled trusts in that one person establishes them for the benefit of another. Parents of disabled children oftentimes establish third-party special needs trusts, thereby helping the child obtain public benefits while at the same time providing additional support for the disabled child.
And, so long as the trust is drafted properly, the trust will not disqualify the disabled child from any public benefits he or she may receive. The catch is that the trust document must grant the trustee discretion whether to distribute funds to the beneficiary. If drafted in this manner, the trust may supplement the child’s benefits without jeopardizing his eligibility.
Unlike self-settled special needs trusts, third-party special needs trusts do not require payback provisions. Furthermore, they can ordinarily be established without the direction of a judge or a court-appointed guardian. Nevertheless, third-party special needs trusts are governed by specific rules, and they must be administered according to specific rules as well.
As such, it is always a good idea to involve a special needs trust attorney when establishing such a trust. A qualified special needs trust attorney should be familiar not only with Medicaid special needs trusts, but also with public benefit rules and eligibility requirements.
How Special Needs Trusts are Used
Special needs trusts are ordinarily used to supplement the assistance provided by Medicaid (AHCCCS and ALTCS) or SSI. Once placed in a special needs trust, funds are set aside for certain uses, and they are not counted for public benefit eligibility purposes.
But, because special needs trust funds can only be used for approved expenses, an inappropriate expenditure may cause the beneficiary to be denied or disqualified from public benefits.
Trustees are allowed to spend trust funds on the following types of expenses:
- Home maintenance and repair
- School tuition and books
- Appropriate entertainment expenses
- Supplemental caregiver expenses
- Trust management expenses
- Prepaid burial plans
- Medical services not covered by public benefits
- Clothing and other personal care
There are also improper use of funds for special needs trusts. Trustees should not use trust funds to purchase food or shelter or any item that can be converted to food or shelter, for the beneficiary, as this could cause the beneficiary to lose his public benefits.
As with most legal rules, however, this rule has certain exceptions, so trustees should always work with a special needs trust attorney to establish guidelines.
When trustees use special needs trust funds inappropriately, the funds may be counted as the beneficiary’s income for purposes of determining eligibility for public benefits. Because public benefit recipients must meet income requirements, additional income may disqualify a trust beneficiary from public benefits.
As such, trustees should be very careful when spending trust funds, lest they jeopardize the beneficiary’s public benefits. To ensure that beneficiaries remain eligible for public benefits, trustees should consider working with a special needs trust attorney who can help them abide by the rules.
How Special Needs Trusts are Administered
Trustees are bound by fiduciary duties and must be extremely attentive to detail when administering a special needs trust. They must comply with the language of the trust document itself, as well as with Arizona trust laws.
In fulfilling their obligations, trustees are required to handle tax issues and necessary accountings. Moreover, as special needs trusts are generally used to help the beneficiary remain eligible for public benefits, trustees should also be familiar with the rules and regulations surrounding ALTCS, SSI or both.
To help with all of this, trustees should recruit a special needs attorney who is familiar with public benefit programs.
Additional Planning for ALTCS Benefits
A special needs trust is but one tool that is available to help people qualify for the ALTCS benefit. At times, applicants may need to use a combination of planning tools to qualify.
Other times, applicants who qualify medically need do nothing more than fill out an application. Either way, ALTCS members enjoy a wide range of valuable benefits once approved.
To learn more about Arizona’s Long-Term Care System, click here to receive a free ALTCS & Financing Long-Term Care Guide.
Using Special Needs Trusts for Public Benefits
Because public benefit programs, such as SSI and Medicaid (AHCCCS and ALTCS), are needs based, they are only available to individuals who meet strict income and resource requirements. This means that applicants can be denied or disqualified from important benefits if they have even slightly above the resource limit.
Countless people whose resources exceed the limit mistakenly believe they can only become eligible for benefits by spending down their excess resources. The truth is, however, that many tools are available to help public benefit applicants qualify for benefits.
In certain situations, Medicaid (AHCCCS and ALTCS) and SSI applicants may create a special needs trust to supplement their needs, and at the same time help them qualify for benefits. While creating a special needs trust does not in itself trigger eligibility, it may help those who would otherwise qualify for benefits were it not for excess resources.
Special needs trust funds are not counted for purposes of Medicaid (AHCCCS and ALTCS) and SSI eligibility, so establishing such a trust is a way in which applicants can get their resources below the threshold. The catch to this is that special needs trust funds can only be used for limited purposes.
Call Arizona Estate Attorney Dave Weed at (480)467-4325 to discuss your case today.
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