"If Government Benefits Matter, then you need a Special Needs Trust!"
As parents--
The perpetual question we ask ourselves is, "when we die, will my children be okay?".... "will they be taken care of?"... and "if I die today, will I have planned for tomorrow?"
Some of us mull over this more than others, but regardless, we all think about it. After all, it's kind of our job, right?
Special Needs Trust Defined:
A special needs trust is a type of trust designed for a person with a quote unquote disability; who, because of their disability, will need a little extra help throughout their lives.
To clarify, disability doesn't just mean cerebral palsy or quadriplegic; there's a whole range of less severe, but nonetheless, challenging disabilities that benefit from a special needs trust.
For now, it suffices that a special needs trust is the tool that, when properly drafted, will enhance your loved one's life while ensuring they continue receiving important government benefits like supplemental security income (SSI) and Medicaid.
What qualifies as a disability in the EYES of the Social Security Administration (SSA)?
It's very broad and ranges from neurological, physical, mental, to sensory disorders.
For a full list of disabilities the SSA recognizes, go to www.ssa.gov and type in "listing of impairments" in the search bar. Some mainstream disabilities we're all familiar with include: autism, parkinsons, down syndrome, extreme OCD, blindness, and eating disorder.
How is a Special Needs Trust different from any other trust?
A special needs trust is created with a very specific purpose in mind, and
once made, cannot be revoked.
Allow me to expound.
Unlike a Revocable Living Trust, a special needs trust is not created with the Grantor in mind (i.e. the person creating the trust). Nor does it have the flexibility to amend, change, or revoke; something people find highly desirable in a revocable living trust.
In fact, a special needs trust is very strict, not just in its formation but its application too.
Where a living trust offers fluidity, a special needs trust is rigid; where a living trust is revocable, a special needs trust is not.
Why OPT for a Special Needs Trust over another Kind of Trust?
Protection!-- From what you ask? --Everything.
Because a special needs trust is irrevocable, and because the beneficiary is technically not in control of the trust assets, it is not legally recognized as the beneficiary's property.
Why does this matter?
It matters because the Social Security Administration can't count the resources (i.e. liquidated assets) in the special needs trust as part of the beneficiary's estate.
So?
A person's countable resources must be under a certain threshold for them to receive SSI/SSDI and/or Medicaid. For SSI the cap is $2,000, for Medi-Cal (California's state run medicaid program) its $130,000. Seems like a lot, right? It is, especially compared to most other states whose countable resources are capped at $2,000.
Pushing forward, the social security administration can't count the special needs trust or the assets in it, as a recipient's countable resources. Pause and think about this for a second! A special needs trust could theoretically have millions in assets (a real cash cow) and the state wouldn't bat an eye. Your loved one would still be eligible for government benefits as if they had just $1 in their bank account.
But how, Ruben, how?
Technically, your loved one aka "the beneficiary" of the special needs trust doesn't own nor do they control the millions of dollars of trust assets; the trust does. Therefore, from the state's perspective, or more aptly stated, the law's perspective, the trust assets are off limits in determining if a person meets the financial requirements or not.
Mind blowing, right!?
ABLE Accounts vs. Special Needs Trust?
First, both are better than nothing. Yet, in my opinion, one is a clear winner.
ABLE Accounts? The ABLE Act, aka the Federal "Achieving a Better Life Experience Act of 2014," was created as an alternative of sorts to the special needs trust.
The really cool thing about these accounts is that, opposite a special needs trust, it gives the beneficiary (i.e. the disabled adult) the ability to save and have control of their own money.
This alone is worth considering if your loved one is financially savvy and can more or less take care of him or herself. I mean, the practical and real life benefits of ABLE accounts speak for themselves.
Currently, the cap for an ABLE account is $100,000 if the account holder is only receiving SSI. If they're just getting Medicaid, then the monetary ceiling is raised.
Drawbacks of ABLE accounts--
Medicaid payback! This is a big one folks.
Unlike a special needs trust, an ABLE account is subject to Medicaid payback.
For instance, say your loved one (i.e. the account holder of the ABLE account) dies with $475,000 in their ABLE account (which is allowed in CA if they are only receiving Medicaid, and not SSI), California is getting all of that, assuming their medical bills are in that range.
The disability must have occurred early on.
As I write this, to be eligible for an ABLE, the person must have incurred their disability before the age of 26.
In contrast, there is no age restriction with a special needs trust.
Flexibility.
For all its good, an ABLE account is a tad bit rigid when it comes to what the account holder can use their money for. These are called Qualified Disability Expenses, or QDEs for short. If the goods or services provide some tangible practical benefit, then they qualify as a QDE. Seems pretty broad, right?
Yes and no.
Hypothetically speaking, would a new iPhone be a recognizable benefit in the eyes of ABLE? Maybe, if say, the person has a mental impairment that limits their ability to navigate, and the phone's navigational system helps alleviate this; then yes, the iPhone has a tangible practical benefit.
What about Taylor Swift Concert Tickets? Arguably, any good steward of music will tell you that the greats: Queen, Elvis, the Rolling Stones, U2, and yes, Taylor Swift, are so transcendent that just being in their presence has immediate ameliorative effects. But is your state's ABLE program going to agree with you?
Probably not.
Now what?
I can spend an entire blog discussing the differences between ABLE accounts and Special Needs Trusts, which one is better, why, and so forth; but I'm not going to do that.
(Hold the applause please.)
Why? Because I can sum up in one sentence why I think a special needs trust is better.
But remember, this is solely my opinion, and shouldn't be a substitute for due diligence. Everybody, every circumstance, is different. You should always do your homework before making a decision between whether to go with an ABLE account or a Special Needs Trust.
Okay okay, enough of the baptist sermon...a special needs trust ranks better because...
"A special needs trust offers a wide range of protection against: creditors, sometimes the beneficiaries themselves, and Medicaid eligibility. Further, the assets a special needs trust can hold are limitless: the type, the amount, and what those assets can be used for. Last but not least, a special needs trust is immune from Medicaid Payback (the state process whereby the state recovers from your estate, all of the medical bills you've racked up on their dime). This alone, ladies and gentleman, if you know anything about how expensive long-term nursing care can be, makes a special needs trust a cut above the competition."
Add a SNT to your Estate Plan
Whether you have a trust, will, or neither, it's never too late to add a special needs trust to your estate plan.
If you've read some of my other blogs or have watched my youtube video on Probate (Ruben J. Martinez @RJM Lawyer), then you know the perils of not having your estate in order before you die. In short--it's a flippant nightmare!
In closing
Don't leave it to your family to pick up the pieces when you're gone, be proactive and get your estate plan in order. I promise--your family will be grateful you did.
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That's it folks! Thank you for taking the time to read this blog on special needs trusts, I hope it has been informative.
Please email me at: Ruben@rjmlawyer.com if you have any follow-up questions about special needs trusts, specifically, or estate planning in general. I am happy to answer answer any and all of your questions, absolutely and unequivocally free of charge.
Until next time,
-RJM LAWYER
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