Special needs trusts are popular planning tools that are designed to hold and manage assets for a person with special needs. These trusts allows a person to retain eligibility for certain government programs, most notably Medicaid and Supplemental Security Income (SSI). SSI is a government program designed to assist those with special needs that are also low-income. In order to meet the low income requirement, the individual must either have less than $2,000.00 in assets in their personal name or, if the individual’s assets exceed $2,000.00, they must be placed in a “first-party” special needs trust.
Special needs trusts come in two varieties, third-party and first-party. There are several key differences between these types of trusts.
Third-party SNT – The traditional special needs trust is the third-party special needs trust. In this arrangement, the trust is created by a third-party (parents, grandparents, sibling, guardian etc.) and the assets placed in the trust are not considered to be owned by the special needs individual. Additionally, assets placed inside of the third-party special needs trust can be passed to heirs or charity upon the death of the special needs individual.
First-party SNT – A first-party special needs trust is created by an individual with special needs to hold and manage assets that already belong to that person. Any assets remaining in the trust upon the passing of the special needs individual must be used to reimburse the government for medical care received by the special needs individual.
The Special Needs Fairness Trust Act of 2015 addresses first-party special needs trusts. Unless this legislation passes, individuals with special needs are not permitted to create their own first-party special needs trust. Instead, special needs individuals must rely upon their parents, grandparents, or a court order to create such a trust. Passing this legislation would significantly increase access to special needs trusts.
The Special Needs Fairness Act seeks to add the individual with special needs to the list of people that can create a first-party special needs trust. This modification will significantly reduce the undue burden on the special needs individual. It will also allow the special needs person to remain independent and avoid the significant legal costs required when petitioning the court.
If you have a friend or a family member with special needs and would like to learn more about the planning that we can offer to help this individual retain assets without compromising eligibility for government help, please call AlerStallings to schedule a consultation or to reserve your seat at one of our educational seminars. We always welcome the opportunity to help.