Special Needs Trusts play Vital Role for SSI & Medicaid Recipients

A person with disabilities who is incapable of engaging in substantial gainful activity for self-support in the competititve workplace may be receiving Supplemental Security Income (SSI) and the Medicaid benefits for health care that accompany the SSI.   http://www.state.nj.us/humanservices/dmahs/clients/medicaid/abd/index.html   The person may reside in the community, in an assisted living facility or in a nursing home. Both Medicaid and SSI have strict financial requirements: monthly “income” cannot exceed the SSI amount and “countable resources” cannot exceed $2,000. http://www.ssa.gov/ssi/ 

For a person who depends upon these programs, they are the lifelines to survival.

When an SSI & Medicaid recipient suddenly inherits money because a parent, grandparent or other family member dies, they are at risk of losing these vital benefits. If they have been injured and are about to receive a personal injury settlement or jury award, they are at risk of losing these vital benefits. If their inaccessible real estate finally sells, they are at risk of losing these vital benefits. And if they receive alimony as a result of a divorce settlement, their income may exceed the pertinent eligibility level. In all of these situations, careful attention should be placed to starting the necessary court proceedings in a timely way to establish a special needs trust that could preserve the funds and the SSI & Medicaid benefits for the recipient’s long-term protection.

Special Needs Trusts are called “d(4)(a) trusts” for the section of the Social Security Act that allows a recipient’s assets to be transferred to the trust without causing a transfer penalty. These trusts can only be funded before age 65, and the State must be named as the first beneficiary if the Medicaid recipient dies. A Trust document must be prepared which meets many requirements contained in federal and state law.

When relatives of a person on SSI/Medicaid are preparing their estate plans, they can specify that the bequest be funneled into a Supplemental Needs Trust (without a State pay-back) rather than given outright to the heir. Sometimes the Trust is written into the Will. other times, the parents of a young adult disabled person have already established a Supplemental Needs trust for their child with its own taxpayer EIN#, and the other family member can specify this trust to receive the inheritance. This can protect the heir’s benefits. Caution in drafting is warranted, because as discussed in a prior blog post, a general discretionary trust in the Will would not provide the same level of protection as a Supplemental Needs Trust.

If you are receiving SSI or Medicaid and are about to receive money, and you’re under 65, there may be good options for asset preservation using a Special Needs Trust, but specialized legal proceedings will be needed.

For advice and representation regarding SSI, Medicaid and Special Needs Trusts … call 732-382-6070

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