Special Needs Trust
The only reliable method of making sure that the inheritance actually has a chance of reaching a person with a disability when he or she needs it is through the legal device known as a Special Needs Trust (SNT). The SNT is developed to manage resources while maintaining the individual's eligibility for public assistance benefits. How is this done? Simply put, the family leaves whatever resources it deems appropriate to the trust. The trust is managed by a trustee on behalf of the person with the disability.
While government agencies recognize special needs trusts, they have imposed some very stringent rules and regulations upon them. This is why it is vital that any family contemplating using a SNT consult an experienced attorney -- not just one who does general estate planning, but one who is very knowledgeable about SNTs and current government benefit programs. One wrong word or phrase can make the difference between an inheritance that really benefits the person with a disability and one that causes the person to lose access to a wide range of needed services and assistance. As an illustration of this, suppose that the trust instructed the trustee (manager) to pay the person with the disability $100 a month for life. Such a mandatory income might jeopardize government benefit programs, which only allow him or her to have $70 of income each month.
The first thing that may come to mind for most families who have had experience with government benefits is that the government says that a person with a disability cannot have a trust. Correct. However, the special needs trust does not belong to the person with a disability. The trust is established and administered by someone else. The person with the disability does not have a trust. He or she is nominated as a beneficiary of the trust and is usually the only one who receives the benefits. Furthermore, the trustee (manager) is given the absolute discretion to determine when and how much the person should receive.
Given the government's stringent requirements it is critical that the trust be carefully worded and show clearly that the trust:
is established (grantor, settlor) by the family (persons other than the person with the disability);
is managed by a trustee (and successor trustees) other than the person with the disability;
gives the trustee the absolute discretion to provide whatever assistance is required;
should never give the person with the disability more income or resources than permitted by the government;
must be used for supplementary purposes only; it should add to the things provided by the government benefit program, not supplant (replace) them;
defines what it means by supplementary/special needs in general terms, as well as in specific terms related to the unique needs of the person with the disability;
provides instructions for the person's final arrangement (families should assume that when the individual with the disability dies no relatives will be alive who know what the mother and father would have wanted);
determines who should receive the remainder (what is left over) of the trust after the individual with the disability dies;
provides choices for successor trustees -- people or organizations that might be able to take a personal interest in the welfare of the person with the disability;
and protects the trust against creditors or government agencies trying to obtain funds to pay for debts of the person or the family.
Since the trust is a legal arrangement that is regulated by the laws of your state, there will be other sections that your attorney may need to insert. It is important to know that, while the majority of public assistance funds come from the federal government (which provides guidelines for SNTs), it is the responsibility of each state government to regulate trusts and administer the federal benefits. As long as the federal guidelines are followed to the letter, the state will accept the SNT, and the trust will fulfill its function.
What the Social Security Administration Has to Say About Special Needs Trusts
The Social Security Administration's (1990) publication Understanding SSI discusses special needs trusts as follows:
How do resources in this type of trust count in the SSI program?
Money or property in this type of trust for an SSI beneficiary...does not count toward the SSI resource limits of $2,000 for an individual.
How does money from the trust affect the individual's SSI payments?
Money paid directly to the providers for items other than the person's food, clothing, and shelter does not reduce SSI payments. (Items that are not "food, clothing, or shelter" include medical care, telephone bills, education, entertainment.)
Money paid directly to the providers for food, clothing, and shelter does not reduce the individual's SSI payments -- but only up to a limit. No matter how much money is spent for these items, no more than $155.66 (in 1991) is subtracted from the individual's SSI check.
Money paid directly to the individual from the trust reduces the SSI payment. (U.S. Department of Health and Human Services, 1990, p. 46)