In December 2016, the Special Needs Trust Fairness Act became law at the federal level, meaning that Congress and the President in Washington D.C. passed it. It now is up to the states who make take some time to adopt their own version of the federal law. Thus, Florida is tasked with adopting its own version of the federal law concerning Florida special needs trusts.
Changes in the Law Governing Florida Special Needs Trusts [Added Protection for SSI and Medicaid Benefits]
Changes in the law governing Florida special needs trusts have added to the available options for a disabled person who seeks to protect assets while preserving “need based” disability benefits.
To set the stage for this topic, I began writing about Florida special needs trusts after having a conversation with a colleague about an individual who was informed by another advisor that he could not give any of his estate to a family member who was a minor and receiving need based (SSI) disability benefits.
If this individual had never asked around for a second opinion, a vulnerable young disabled person could have been limited for his lifetime to ONLY the resources offered by government support.
The law has provided a better solution for vulnerable disabled people among us who are on SSI disability. This solution is known as a Florida special needs trust a/k/a supplemental needs trust, and it just got better with the passage of the new law.
The following areas of Florida special needs trusts will be the focus of this article:
- The types of disability benefits that require the protection of s Florida special needs trust.
- How people who are receiving need based disability benefits (SSI) can easily LOSE benefits if certain steps aren’t taken.
- When a Florida special needs trust is allowed.
- How a Florida special needs trust is set up AND the requirements and options for doing so since the updates of the Special Needs Trust Fairness Act.
Types of Disability Benefits
People get confused about the various TYPES of disability benefits which are basically:
- Veteran’s Benefits
SSI is for low income people who are either elderly, medically disabled or blind. This is a means tested program like Medicaid, and thus to qualify one can only have limited or few assets.
SSDI on the other hand is a benefit program that is NOT need based. Eligibility for SSDI is based upon the number of work credits that someone has accrued prior to becoming disabled or by being the dependent or survivor of a deceased, retired or injured worker.
Medicaid is linked to the receipt of SSI in most states; however, the use of a Florida special needs trust is currently limited to those of age 65 or younger as we will discuss. So many who are on Medicaid and over age 65 will not be able to preserve assets through the use of a Florida special needs trust, though there are other Medicaid planning strategies to preserve assets.
Medicare is similar to SSDI as it is paid for and NOT “means tested” and eligibility is similar to qualifying for SSDI in that after 24 month of SSDI, the applicant usually qualifies for Medicare.
So to simplify, if someone qualifies for SSDI, they will receive Medicare AND if someone qualifies for SSI, they will receive Medicaid. Receiving social security also relates to Medicare and vice versa. For all of the above reasons, it is generally not necessary to utilize a Florida special needs trusts to preserve SSDI or Medicare benefits.
Veterans’ benefits refers to benefits received by Veterans or the spouse, children or parents of a deceased Veteran. These benefits are governed by their own rules and administered by the U.S. Department of Veteran’s Affairs (VA). Current VA interpretation of the rules suggests that transfers to a Florida special needs trust may not be fully effective for Veterans.
According to the VA rules, assets in a special needs trust may be “counted” when calculating for eligibility for various benefits such as an improved pension. Also, the VA may place a freeze on benefits under current laws. In any event, attorneys must obtain a special certification to advise beneficiaries in this area.
Given the above distinctions with OTHER disability benefits…
SSI is a highly special type of disability benefits that is often synonymous with Medicaid. Both Medicaid and SSI are “need based’ and is therefore subject to strict asset limits.
…this is why disqualification from SSI benefits can happen if someone receives a lump sum of money or assets.
3 common ways to lose SSI benefits are…
- Inheritance or bequest (from an estate)
- Settlement in divorce (equitable distribution, alimony, child support)
- Personal injury settlement (or receipt of money from a judgment)
These 3 can be summarized as virtually any lump sum of money or assets; however, there are a few key things to know about the above.
First, if an SSI recipient is designated as the beneficiary of a last will or trust OR an insurance policy, he or she cannot simply refuse the benefits in order to remain qualified under SSI. Most people don’t realize that a “disclaimer” from the inheritance can jeopardize Medicaid. Similarly, disclaiming an inheritance can result in a penalty and disqualification for a penalty period concerning SSI benefits.
So, if someone is so designated under a will or trust AND is under age 65, there is only one real solution is someone wants to avoid the penalty, to be discussed…
Second, funds received such as unpaid child support, which are always viewed by the legal profession as for the benefit of children, are NOT exempt under the SSI rules and can thus can disqualify the SSI beneficiary.
Third, legal judgments that are paid in a lump sum, as they often are, will be highly prejudicial to the SSI beneficiary due to the asset limit. Thus, it may be advantageous to negotiate another payment structure; however, depending on the amount, a Florida special needs trust may offer a better solution.
Updates to Florida Special Needs Trust Law
For a Florida recipient of SSI benefits who is under the age of 65 and risks disqualification of penalties resulting from one of the above events, Florida special needs trusts can be huge solution.
There are some updated rules for setting up a special needs trust in Florida, as of 2016 and the new Special Needs Trust Fairness Act.
The federal congress originally decided that an individual who is under the age of 65 and is defined as “disabled” under the Social Security Act, could NOT set up a special needs trust on his or her own behalf. So the practice has since been to have the Florida special needs trust blessed (established) by the court. Another approach has been coordinate getting the trust set up through a parent, grandparent, or legal guardian.
With the enactment of the Special Needs Trust Fairness Act, a beneficiary of SSI can now set up a Florida special needs trust for themselves.
Inside insight…most people don’t know is that the U.S. Congress originally intended to allow the disabled person to set up the special needs trust on their own behalf BUT the necessary language was accidentally omitted in the law.
So, as of December 2017, they’ve corrected and updated the law to allow what we call a “self-settled” special needs trust in Florida. Your next question might be whether one still needs to be under the age of 65 to establish an individual special needs trust and the ANSWER is yes.
For those of you who like to peruse dusty law books:
OLD STATUTE, 42 USC 1396p(d)(4):
(4) This subsection [outlawing trusts for elders] shall not apply to any of the following trusts:
(A) A trust containing the assets of an individual under age 65 who is disabled (as defined in section 1614(a)(3)) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this title.
(4) This subsection shall not apply to any of the following trusts:
(A) A trust containing the assets of an individual under age 65 who is disabled (as defined in section 1614(a)(3)) and which is established for the benefit of such individual by the individual, a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this title.
More inside insight…for an individual, Florida special needs trusts are not available for adults who are over the age of 65 because the way to prove a disability becomes more complicated when the adult is eligible for Medicaid. Depending upon the state laws, there are procedures in place to determine eligibility and a “Pooled Trust” is often used for people who are over age 65.
How to Set Up a Special Needs Trust in Florida
The legal agreement needed to establish a Florida special needs trust can be packaged as follows:
- Included in the Florida revocable living trust or a parent, grandparent or legal guardian of the individual; OR
- As a stand alone irrevocable trust document by the individual, a parent, grandparent or legal guardian of the individual or recipient.
An effective way to set up a special needs trust someone who under the age of 65 is in a revocable living trust IF you want certain assets to pass to the SSI recipient upon your death. In our recent post, we addressed this option as one of…7 key ways to use your Florida revocable living trust.
The reason that adding a Florida special needs trust to your Florida revocable living trust is a good option because the Florida special needs trust can be changed. With this strategy, the Florida special needs trust may also be revoked during the lifetime of the parent, grandparent or legal guardian (the “trustmaker”) AND can be updated to suit any changes in law. This approach also provides maximum flexibility upon the death of the trustmaker to assure that the SSI beneficiary is not disqualified from benefits. The revocable living trust language allows that the Florida special needs trust can also be updated to comply with any recent changes in the law in order to prevent disqualification.
Another option is to set up a stand-alone special needs trust in Florida and fund it immediately. As discussed, this can now be done by either the individual SSI beneficiary OR a parent, grandparent or legal guardian. It is important to keep in mind that if this kind of trust is set up, there may be tax consequences to the parent or grandparent due to “gifting” under the estate tax rules. The individual beneficiary may also face tax consequences due to the loss of what is called the “step up in basis”. This loss can occur if real property is received during lifetime of the granting person rather than upon their death.
Legal Requirements for Establishing a Florida Special Needs Trust
The trust language itself must follow the laws governing Florida special needs trusts. This language needs to direct how the trust assets are spent. Sometimes “less is more” when it comes to legal documents, so I’m not suggesting that a Florida special needs trust should be a lengthy and complicated document. It just needs to include the right stuff…so to speak.
With today’s legal requirements, the Florida special needs trust should meet a few minimal requirements as follows:
- The trust should be designed as a special needs trust pursuant to 42 U.S.C. Sec. 1396p (d)(4)(a) and that it is for a disabled person under age 65.
- That the intent of the trustmaker (settlor) is to allow eligibility for ongoing public assistance including SSI or Medicaid.
- That the intent is to “supplement” and NOT “supplant” public benefits.
- That distributions may be made in the trustee’s sole discretion for maintaining the quality of the beneficiary’s health, education, safety and welfare when they are not being provided by ongoing public assistance.
- That the trustee will repay all state Medicaid bills upon termination of the trust provided they may pay other estate expenses first.
Precautions for Administering a Florida Special Needs Trust
Penalties can occur if trust distributions are used to pay in kind” support for food and shelter items defined as 10 categories under the current rules as follows:
- Mortgage (including property insurance)
- Real property taxes
- Heating fuel
- Garbage removal
On the other hand, trust distributions may be used for non-food and shelter items with some flexibility. So, expenses may include and are not limited to things like such tuition, books, electronics, phone cable and internet expenses, vehicle expenses, and legal and trustee fees.
There you have it…a comprehensive overview of Florida special needs trusts a/k/a Florida supplemental needs trusts.
Remember, that the foregoing rules are subject to change in today’s volatile climate of healthcare and social services, particularly given a new incoming administration. So, I encourage you to stay tuned.
Steven Gibbs, Esq.