Ronald Fatoullah & Associates - Elder Law

Special Needs Trusts: Beyond Medicaid and SSI


By Ronald A. Fatoullah, Esq. and Debby Rosenfeld, Esq.

Many of our clients seek guidance with respect to planning for their children with special needs. "Special needs" can cover a host of different types of disabilities. Some children will be able to live a full life with social and economic opportunities, but simply need more supervision and hands-on asset management. Other individuals may require far more intervention, including a myriad of governmental benefits such as Supplemental Security Income ("SSI") and Medicaid. Parents of such children will be required to do more extensive planning in order to protect their children's assets. Finally, there are some individuals who develop special needs later in life. People who have worked for a certain period of time and paid into the Social Security system are eligible for Social Security Disability Insurance ("SSDI"). SSDI is a federal program that provides monthly cash payments to people who can no longer work due to a disability.

SSI and Medicaid are means-tested government benefits. A means-tested benefit means that an individual is only entitled to these benefits if he is impoverished. Accordingly, advance planning must be effected for individuals who are or will be the recipients of these benefits because owning assets over the allowable threshold jeopardizes eligibility. A special needs trust ("SNT") is the vehicle that is commonly used to protect the assets of the disabled person. An SNT can hold assets for the benefit of a physically or mentally disabled person without disqualifying such person from receiving certain governmental benefits. The SNT gives full discretion to the trustee to make payments to, or on behalf of, the disabled person.

Unlike SSI and Medicaid, SSDI is not a means-tested benefit. In other words, this program does not have an assets limit or a restriction on income. A millionaire may receive SSDI provided he meets the requirements (for example, the person is no longer able to work due to a disability) and therefore does not have to transfer his assets to an SNT or do other planning in order to remain eligible.

Even though SSDI beneficiaries do not have to worry about asset and income limitations, it still might make sense for them to have SNTs. SNTs offer many benefits that go far beyond enabling individuals to maintain their SSI and Medicaid eligibility. A person with a mental or physical illness might have difficulty handling and managing his money. He might be imprudent with respect to his finances or may spend money frivolously. Alternatively, a disabled individual might handle money well, but could be vulnerable to predators. In such instances, it would make far more sense for the disabled person's assets to be held by a trust with the trustee having full discretion regarding how the money is spent. In addition, a person on SSDI might, in fact, require Medicaid or another means-tested benefit in the future. Having an established SNT will enable such person to qualify, if and when the need arises.

When a disabled person has assets in his own name, he can fund a first party special needs trust. This differs from a trust that is established for the benefit of a disabled person from someone else's assets (i.e., a parent or relative), often referred to as a third party trust. Under current law, a first party special needs trust cannot be established by the disabled person himself. Rather, it must be created by a parent, grandparent, guardian or court - even though the assets are actually owned by the disabled person and even though he is totally competent and capable of creating his own trust. In the case of a disabled child who has reached majority age, it may be prudent for the parent or grandparent to establish a first party trust in case it will be needed for the individual later in life. This is far easier and less costly than going through a court process when there is no longer a living parent or grandparent to create the trust.

In light of the foregoing reasons, any parent of a disabled person should consider the creation of an SNT - even if governmental benefits are not currently required. It can provide a myriad of protections that go far beyond maintaining eligibility for governmental benefits.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Debby Rosenfeld, Esq. is a senior staff attorney at the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also the co-founder of JR Wealth Advisors, LLC. The wealth management firm can be reached at 516-466-3300 or 800-353-3775.

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