What is a Special Needs Trust?
The Special Needs Trust (SNT) is a planning tool that most people have heard about but know very little of.
Most understand that persons who may be receiving certain government benefits may lose those benefits if they receive an inheritance.
To understand when an inheritance may cause loss of benefits, it is necessary to differentiate between Supplemental Security Income (“SSI”) and Social Security Disability Income. Both programs are administered by the Social Security Administration, but they differ in some important ways.
What is Social Security Disability Income (SSDI)
SSDI provides income if you are unable to work for more than twelve months due to your disability.
A person must be under age 65 to qualify and must have been employed for five of the last ten years.
So this is a form of disability income for people who have had to drop out of the workplace due to a disability. SSDI is not “means tested.” This means that a person may have substantial assets, such as a home, bank accounts, retirement accounts, etc. and may still receive SSDI benefits.
What is Supplemental Security Income (SSI)
SSI is for persons who are blind or disabled. SSI is means tested. If a person has more than $2,000 in assets, that person is automatically disqualified from SSI benefits.
However, you may own your home and still receive SSI as long as you reside in the home, but benefits are reduced for the housing element of the SSI payment.
For inheritance purposes, you don’t need to worry about a special needs trust for a person receiving SSDI. The inheritance will not disqualify the person from the SSDI benefits.
But since SSI is means tested, if a person receiving SSI receives an inheritance, the inheritance will likely reduce the amount of SSI being received, and may even completely disqualify the recipient from the SSI payments.
In order to avoid this result for SSI recipients, the Special Needs Trust may be utilized to provide the person with the inheritance while not disqualifying them from the SSI payments.
Generally speaking, a person will create their own revocable living trust to hold their assets while alive. The living trust acts like a will at death and designates the persons who will inherit the estate through the trust.
If one of the beneficiaries of the trust estate is person receiving SSI payments, that beneficiary will not receive his or her inheritance directly; rather, a trustee of your choice will hold the beneficiary’s inheritance in a special needs trust, created as a sub-trust of your living trust, which will come into effect upon your death and which will govern the distribution of the inheritance to your special needs beneficiary.
The Special Needs Trust (SNT) may provide for supplemental distributions to the beneficiary to enhance the beneficiary’s life. The SNT should not provide for basic living expenses; those are to be covered by the SSI payments. But all other things like, vacations, books, music, clothing and the like may be purchased for the special needs beneficiary.
The SNT may also provide that on the death of the Special Needs beneficiary, any funds remaining in the Trust share held for the now-deceased special needs beneficiary may be distributed to persons of your choice.
Judicious use of the Special Needs Trust will enhance the lives of those persons who are receiving SSI benefits and will not compromise the qualification for such benefits.
Free Consultation with a Trust Lawyer
To determine which special needs trust is right for your family, meet with our experienced Las Vegas trust lawyers today for a free consultation and discuss your needs.