When it comes to planning for a family member that suffers from a mental or physical disability, it is important that you protect their government benefits after you are gone.  If a beneficiary is receiving SSI and/or Medicaid, that beneficiary cannot have more than two thousand ($2,000) dollars in an account without losing those government  benefits.   If your goal is to leave this special needs beneficiary an inheritance, you are going to have to go above and beyond a simple Will. 

A Third Party Special Needs Trust is what you will need to set up.  This Trust is established by you or someone other than the person with the disability.  In many cases, but not always, it is a parent or a grandparent.  The assets placed in a Third Party Special Needs Trust never belong to the special needs beneficiary.  In most cases, the Third Party Special Needs Trust is set up with inheritance funds that pass into the Trust as opposed to pass outright to the special needs  beneficiary.  This Trust also provides the Trustee permission to use income and principal for the benefit of the special needs beneficiary, without affecting their government assistance.  Because the funds were never owned by the special needs  beneficiary and will never be owned by them,  this type of trust does not require a payback provision to the Medicaid program.  Upon the death of the beneficiary, any remaining funds in the Third Party Special Needs Trust can be distributed per the terms of the Trust, which is typically to other members of the family or any children of the special needs beneficiary.

Here are some of the things that the Trust can be used for without affecting the beneficiary’s assistance:  (1) clothing; (2) phone, cable and internet services; (3) vehicle, insurance, maintenance, and gas; (4) prepaid funeral/burial arrangements; (5) tuition, books and tutoring; (6) travel and entertainment;  (7) household furnishings and/or furniture; (8) television, computer, and electronics; (8) care, therapy and alternative treatments; (9) legal, guardianship and Trustee fees. 

The Special Needs Trust funds cannot be used for food and shelter.  What is important to understand is that the Social Security Administration identifies shelter as mortgage payments, property taxes, rent, heating/fuel expenses, gas, electricity, water, sewer and garbage removal.  In some cases, payment of a condominium assessment or condominium association fees may be viewed as a partial payment of water, sewer and/or garbage. 

For more information, check out the full article on special needs planning on my website.