People with Special Needs
Individuals with special needs often face “quality of life” challenges compared to those without special needs. Many times individuals with special needs require added expenses to meet those needs. The added financial burden often leads individuals with special needs to depend on public benefits to help them meet those costs. Unfortunately, public benefits often fail to meet all of the needs of a disabled individual. However, the supplemental needs of those individuals (meaning needs not covered by public benefits) can be met by using funds held in a Special Needs Trust (SNT). These trusts need to navigate the tricky laws of the Federal Government and Connecticut or New York. They are authorized by Section 1917(d)(4)(A) and (C) of the Social Security Act.
Understanding Special Needs Trusts
A Special Needs Trust is a trust that is established for an individual with special needs who is or may become dependent on public benefits. The trust is specifically identified to meet certain supplemental needs and to enhance the quality of life for the beneficiary, the special needs person. Most importantly, the SNT is created so as to not disqualify the beneficiary for the public benefits being received.
The trust, then, is a pool of money available for the benefit of the beneficiary in order to provide him or her with goods or services that public benefits do not provide.
For example, SNT funds may be used for in-home care services that would otherwise not be affordable to the beneficiary. Should a person with special needs receive these funds outright and outside a properly created SNT, the individual may become ineligible for the public benefits and reinstatement of the benefits can be a difficult process.
There are two types of SNTs: A third-party SNT and a first-party SNT.
A third-party SNT is one in which a loved one has assets that he or she would like to use to benefit the individual with special needs.
Whereas, a self-settled or first-party SNT is one in which the assets belongs to the individual with special needs. A self-settled SNT is often used in the case of a litigation settlement. One example involves an individual who was in a car accident and sued the “at fault” driver successfully. By the time the lawsuit settlement was reached, the individual had been declared disabled. Instead of the settlement funds being given outright to the person who is now disabled, the funds could be placed into a self-settled SNT for the benefit of that individual. This allows the person with the disability to continue to receive benefits and have the settlement money available to him or her for supplemental purposes, increasing his or her quality of life. S
Self-settled SNTs have been recognized by federal law since 1993 under 42 USC §1396p(d)(4)(A). A self-settled SNT contains a mandatory payback provision, meaning that upon the death of the beneficiary, the State will be paid back from the remaining trust assets up to the amount of public benefits expended on behalf of the beneficiary during his or her lifetime.
Within a self-settled trust an individual trustee or corporate trustee is appointed to manage the funds in the trust. Choosing the correct trustee is an important decision as the trustee will be responsible for managing and investing trust assets, and is responsible for following the guidelines regarding proper distributions from the trust. Failing to do so could result in a loss of benefits for the trust beneficiary.
Problem with the Current Law
The law, as currently written, states that a first-party trust may only be established by the individual's parent, grandparent or a court of competent jurisdiction. It appears that the option for a competent individual to establish his or her own trust under 42 USC § 1396p (d)(4)(A) was a simple mistake by the writers of the law. However, this minor mistake causes major financial losses to disabled individuals. It requires those disabled individuals who have no parent or grandparent alive to establish the trust, to expend money on an attorney and court costs in order to ask for a court order establishing the trust. The money to accomplish this is often such an impediment for these individuals, that they do not pursue it and end up either kicked off the public benefits or forgoing the supplemental monies they would otherwise have access to.
What Does the Special Needs Attorney Do?
A Special Needs Planning attorney is an essential advocate when preparing SNTs for individuals with special needs. The attorney will be able to identify the type of SNT that would be helpful in the particular situation and will know how to properly construct it so as to prevent the person with special needs from being kicked off his or her benefits. There are many roadblocks that can arise in the planning process and it is imperative that you have an attorney familiar with the many federal and state laws and regulations concerning public benefits and SNTs.
Connecticut and New York have some different laws so you can get slightly different results if you live in Redding or Lewisboro.