Living Trusts are becoming more common in Estate Planning, and these can include Special Needs Trusts to help take care of a disabled loved one.
What may people don’t take into account, however, is that a Special Needs Trust must be drafted carefully to avoid interfering with the disabled person’s eligibility for government benefits such as Medicaid or Social Security benefits.
When it comes to Medicaid, the government determines eligibility based on income and asset limits. Income is pretty straightforward. But when it comes to assets there are “countable” assets, such as real estate, cash, and mutual funds, and there are “exempt” assets, such as a home, a personal vehicle, and personal items.
If there’s a Special Needs Trust for a disabled person in place, do the disbursements (or care or special health-care equipment provided) from the Trust affect that person’s Medicaid eligibility?
Well, it can get complicated. With one type of Special Needs Trust called a “general support” Trust, the funds from the Trust are considered by the government to be countable assets – so this could affect the disabled person’s Medicaid eligibility.
With another type of Special Needs Trust, a “supplemental care” Trust, the Trust’s assets are viewed as a supplement to government benefits so they are not counted as assets.
Those who want to give a cash gift to a disabled person should also beware: While your intentions may be good – and the gift may be below your annual exemption – that gift is a countable asset in the hands of the disabled person, and may affect Medicaid eligibility. On the other hand, there is a “stand by” supplemental care option where gifts, if placed in that Trust, may not affect the disabled person’s eligibility.
As you can see, a properly-drafted Special Needs Trust can have great benefits for your loved one, but an improperly-drafted trust can have negative consequences for the beneficiary that you may not have expected. Plus, laws and government regulations change on a regular basis. These are solid reasons to consult with an attorney trained in Trusts and Special Needs Trusts if you are considering a Trust for a loved one.