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Special Needs Trust

Individuals with mental and physical disabilities often lack the ability to support themselves due to the inability to work full-time work on a recurring basis. Government benefits such as Supplemental Security Income (SSI) and Medicaid will help pay for a disabled person’s basic needs and medical care if he or she does not receive sufficient income and does not have sufficient assets to pay for these costs.

The maximum monthly countable income that a person can receive and be eligible for SSI benefits is $674 in 2009. In Florida, a person who is eligible for SSI benefits automatically receives Medicaid.

If the disabled person meets the income and asset guidelines, Medicaid pays for the cost of health care provided by physicians, hospitals, pharmacists and other health care providers. SSI may also pay for training programs.

Unearned income received from other benefit payments, financial gifts, annuity payments and payments from a trust fund paid directly to the SSI recipient reduces his or her monthly SSI payment dollar for dollar. Earned income is also counted but treated differently.

In calculating countable income, there is a general $20 disregard applied to most incomes. In calculating the earned income offset to SSI, the first $65 per month of earned income and one-half of the remaining work-related income is not counted. The remaining one-half of work-related income will be counted against a person’s SSI benefit. Payments made by another person for a recipient’s food and shelter reduces the SSI benefit up to a maximum of $224.67 per month in 2009.

The asset limit for an SSI recipient is $2,000. Anything that can be converted to cash will be considered toward this $2,000 limit. This includes bank accounts, 401(k) benefits, cash values in some life insurance policies and trust funds where the trustee has the discretion to pay for the recipient’s support. A homestead, one car and some personal effects are not counted as assets. The asset limit for Medicaid only is $5,000.

If a trust is established to provide for the basic support needs such as housing and food, the recipient will be denied SSI because the trust assets in excess of $2,000 will be considered available to the recipient. A person applying for Medicaid only will be denied Medicaid assistance if his or her trust assets exceed $5,000. It is possible for a trust fund to be created to provide supplemental services to a disabled person without depriving the recipient of SSI and Medicaid benefits. The assets of the trust will not be counted if the terms of the trust agreement state that the trust funds are not to be expended for basic needs that are by SSI but are only to supplement these benefits.

A Supplemental Needs Trust authorizes the trustee to pay only the expenses of goods and services that are supplemental to the beneficiary’s basic needs (food and shelter). Food and shelter expenses cannot be covered by the trust. Some examples of allowable expenses that can be paid from a Supplemental Needs Trust are medical equipment not covered by Medicaid; medical, nursing and dental care, tests not covered by another source; insurance premiums (Health, Dental, Life, Car, and Renter); clothing, personal assistance; private counseling or case management; guardianship and advocacy services; computer hardware and software; school or camp tuition; home appliances; furniture; telephone and internet charges.

Some of the charges that are not allowable to be paid from a supplemental needs trust are food and groceries; rent and mortgage payments, property taxes; condominium fees and utility charges.

The beneficiary of a special needs trust (also known as supplemental needs trust) must be an individual under 65 years of age who is determined disabled by the Social Security Administration. This means the beneficiary who is unable to engage in substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months.

A special needs trust is one that is established for the disabled person’s benefit by a parent, grandparent, legal guardian or the court with money due the disabled beneficiary.  The state paying the Medicaid benefits for a disabled person will receive all amounts remaining in the trust upon the death of the individual, up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan.  Court approval is not required and there need not be a pay-back provision in a trust created by a third party such as a grandparent.

Another type of trust can be established for the special needs of a disabled person without the assets being considered available. This is called a pooled trust. It is managed by a non-profit organization that pools the funds of that trust with the funds from all participants. However, there is a separate sub account for each benefit.   A pooled income trust can be established for a disabled person regardless of his or her age. At the beneficiary’s death, the amount remaining in the beneficiary’s account is paid to the state that provided the Medicaid assistance to the total amount of benefits provided. However, the remaining assets can be left in the pooled trust for other disabled persons and no payback is required.