Should an individual with special needs receive a large sum of money, it is often wise to have the individual or his/her fiduciary establish a special needs trust in order to not jeopardize assistance already being received such as Medicaid or SSI. Should a parent or grandparent wish to provide funds to a special needs individual and not jeopardize assistance being received, a special needs trust may also be a good idea. However, before embarking on such an endeavor, it is critical to understand the different types of special needs trusts and their requirements or else risk losing the benefits already being received.
Set Up Special Needs Trusts To Protect Existing SSI Or Medicaid Benefits
The most common special needs trust created by and with assets of a third party is known as a discretionary “supplemental needs” trust. With such a trust, there is no requirement that funds be turned over to the state upon the death of the beneficiary. However, proper drafting is critical. It is to be used for things not covered by Medicaid or SSI. It must clearly state that it cannot be used for medical care, comfort, maintenance, health, welfare or general well-being. It should also clearly state that the trust will terminate if the trust is counted as an available resource. The distributions should only be used for supplemental items over and above the necessities of life and at the complete discretion of the trustee.
Medicaid Payback Trust Vs. Pooled Trust
Another common trust is the Medicaid payback trust. One type of Medicaid payback trust is the (d)(4)(A) trust which must contain assets of the individual but may also include assets of third parties. It also can only be used for supplemental services not covered by Medicaid or SSI and requires that upon the death of the individual the state must be repaid for Medicaid services provided from the remaining assets in the trust. The individual must also be under the age of 65 when assets are placed in the trust. The other type of Medicaid payback trust is the pooled trust where a nonprofit organization serves as the trustee. For purposes of investment, the assets are pooled with others, but a separate account is maintained for each individual. There is no age restriction for this type of Medicaid payback trust. Once again, upon the death of the beneficiary, the state must be repaid for Medicaid services previously provided.
The final type is the “supplemental services” trust. It is for individuals who are eligible to be served by the Ohio Department of Mental Retardation, a county board of mental retardation and developmental disabilities, the Ohio Department of Health, or a board of alcohol, drug addiction, and mental health services. It cannot be established with more than a certain amount of assets, which was set at $234,000 in 2011, with the limit increasing $2,000 each subsequent year. It is also used for supplemental services. Upon the death of the beneficiary, a portion of the remaining assets which cannot be less than 50 percent must be returned to the state of Ohio to be used for the benefits of others who do not have such a trust.
What Type Of Special Needs Trusts Is Appropriate For You? Seek Assistance From A Reputable Estate Planning Advisor
As you can see, one size does not fit all. It is critical in establishing a special needs trust to know what type of trust is appropriate and that proper language is used in drafting the document. Otherwise, the individual jeopardizes losing any Medicaid or SSI benefits being received. Should you believe that this may be appropriate for you or a family member, please seek assistance from a reputable estate planning advisor.
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Joseph E. Balmer
Joseph Balmer manages the Probate, Trust and Estate Administration department at Dayton, Ohio, law firm, Holzfaster, Cecil, McKnight & Mues, and has been certified by the Ohio State Bar Association as a specialist in Estate Planning, Trust and Probate Law since 2006.