Be sure to fund your Special Needs Trust before age 65

“Special Needs Trusts” are a specific type of Trust which is referenced in the Social Security Act at 42 USC 1396p(d)(4)(a) (regarding Medicaid) and at 42 UC 1382b(c)(1)(C)(ii)(III) (regarding Supplemental Security Income [SSI]. These are first-party trusts, also called grantor trusts. They are for the sole benefit of a person who is disabled.  Sometimes the person is receiving benefits and their inaccessible resources become accessible (such as an inheritance arrives, a lawsuit is settled, or their property gets sold). Sometimes they get divorced and are about to receive alimony or property settlement. Other times, a person has to apply for benefits but has excessive resources.While transfers of a person’s assets prior to filing an application for Medicaid or SSI usually causes disqualification (or a disruption of ongoing benefits), transfers of an applicant’s money into a “d4a trust” or “special needs trust” is an exempt transfer. However, the transfer must be made before the applicant’s 65th birthday.

These Trusts can only be established by the potential applicant’s parent, grandparent, legal guardian [with court authorization, as it’s a gift] or by a court. If the client has no living and capable parent or grandparent, they would have to petition a Court to establish the Trust. This process can take three months because courts’ dockets can get backed up.

When would an older person consider establishing a Special Needs Trust? Perhaps they are in their early 60’s, can no longer work, and are receiving Social Security Disability benefits because of a chronic, degenerative condition that unfortunately is likely to lead to the need for 24/7 care and maybe nursing home care. Examples might be early-onset Alzheimers’ Disease, ALS, Parkinsons’ Disease or advanced stage Multiple Sclerosis. The hope is that nursing home placement can be avoided for a very long time. However, once nursing home care is needed, they may want to apply to Medicaid to pay for that care. At that point, they can only have $2,000 in assets. Having a stash of funds already parked in a Special Needs Trust will make all the difference between a bare bones quality of life and a life that can be enriched through personal services, specialized recreation, specialized treatment, and so on.

The Trust must be funded before your 65th birthday. Otherwise, the transfer of assets will cause disqualification, called a “Medicaid transfer penalty.”

Over the years, I have helped my clients to direct alimony, inheritances, house-sale proceeds and more into special needs trusts so that Medicaid and SSI eligibility could be protected.  The age 65 cutoff is absolute, though, so keep your eye on that ball and start the legal work early enough to accomplish the task in time.

Call us for advice and assistance with Special Needs Trusts … 732-382-6070

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