How Special Needs Trusts Can Be Used
Special Needs Trusts must comply with certain technical requirements, but this does not mean they need to be burdensome or restrictive.
Many people first think that Special Needs Trusts can only be used for medical items or for items that are directly related to a disability. However, this perception is not correct because “special needs” are defined very broadly. Virtually all Special Needs Trusts define special needs as anything that is not provided by the Trust beneficiary’s public benefit programs.
Because public benefit programs are only intended to provide for basic needs and critical items, they never provide for supplemental items that improve someone’s quality of life. This is why a Special Needs Trust is such a valuable tool because it can pay for supplemental items that improve the Trust beneficiary’s quality of life like a home and a vehicle. Special Needs Trusts can also pay for home and vehicle maintenance along with a variety of other items like a vacation, a computer, electronic equipment, educational expenses, and ongoing monthly bills such as phone, cable, and internet services. They can also pay for supplemental care that is not provided by Medicaid such as additional medical care, additional therapy, and the differential between shared and private room settings. Of course, the Trust must also be funded with enough assets to make these purchases.
While Special Needs Trusts can be great tools, you are likely wondering about the technical requirements with which they must comply. First and foremost, they must always comply with the specific rules of the Trust beneficiary’s public benefit program. In most cases, this means that cash cannot be paid to the Trust beneficiary because cash will count as income under the eligibility rules for most public benefit programs. This is true even when the same cash does not count as income for tax purposes.
However, this challenge can be easily overcome by simply paying vendors and service providers directly. In other words, giving money to a Trust beneficiary for the payment of a bill will result in countable income for purposes of public benefit eligibility but paying the same bill directly from the Trust will not result in countable income. What this means is that a Special Needs Trust can comply with this particular technical requirement by simply providing the Trust beneficiary with the convenience of a bill paying service.
Another requirement that Special Needs Trusts must comply with is called the sole benefit rule. This is an easy rule to understand although it first helps to understand a more general rule that applies to Medicaid and SSI. This more general rule is that people cannot give away their assets if they want to become eligible or stay eligible for SSI and most Medicaid programs.
People who give away their assets without receiving fair market value are said to have made an uncompensated transfer. Someone who makes an uncompensated transfer will be subject to a penalty period. Penalty periods do not result in criminal penalties or civil fines, but there will be a period of time during which the person will be denied Medicaid and SSI. The length of the penalty period will depend on how much the person transferred without compensation.
Turning back to Special Needs Trusts, this more general rule about uncompensated transfers is expressed as the sole benefit rule when applied to Trusts. In other words, you cannot make an uncompensated transfer before your Special Needs Trust is established, and the sole benefit rule makes sure that your Trust does not make an uncompensated transfer after it is established. Under the sole benefit rule, two things must always occur. First, Trust disbursements must result in the purchase of a good or service, and second, the Trust beneficiary must receive the direct benefit of the purchase.
While the sole benefit rule is a technical requirement, it truly works for the good of the Trust beneficiary because it makes sure that the beneficiary will receive the full benefit of his or her Special Needs Trust.
The Center for Special Needs Trust Administration, Inc. has extensive experience administering Special Needs Trusts so they comply with all technical requirements in the easiest way possible for Trust beneficiaries. The Center also has extensive disbursement experience with a broad variety of purchases. For example, in addition to managing reoccurring expenses efficiently, the Center has a special team for home purchases and a special team for vehicle purchases. Not only does the Center make sure that a Trust beneficiary’s public benefits are protected, but its specialized teams can oversee and help negotiate significant purchases upon a Trust beneficiary’s request.
Call us today if you are establishing a Special Needs Trust and are interested in the services of a knowledgeable Trustee or if you already have a Special Needs Trust but are experiencing difficulty with a non-responsive or overly restrictive Trustee.