We are always monitoring new legal changes in the legal landscape. One ever-changing area related to the Affordable Care Act (a/k/a Obamacare) is the special needs trust.
A special needs trust is a unique and important planning tool within the realm of Elder Law and Medicaid Planning. These are used for the young and old alike and can vary widely based upon the unique circumstances that are concerned.
If you’re receiving Social Security Disability Benefits under the SSI Rules, then setting up a Florida Special Needs Trust can allow you to remain qualified for disability benefits while providing a means of supplemental financial support. You may not know that if you’re under age 65, and qualified as disabled under the Social Security Act, the process of setting one up is expected has now become a bit simpler.
As a bit of background, an Individual Special Needs Trust (“SNT” is a trust drafted particularly for one beneficiary who is under the age of 65 and receiving SSI disability benefits as defined by the Social Security Act. The SNT appoints a trustee to manage the trust and make disbursements, and the trustee might be a family member, friend, an attorney, or a bank. These are often called “D4A” trusts after the section of the Federal Medicaid statute relating to them. A “Pooled Trust” or “D4C” trusts is an alternative to an Individual SNT and is available to people who are over age 65.
In another post, we take a comprehensive at the Florida special needs trust and the recent changes that have impacted this valuable planning tool. We also addressed the ways to use your SSI benefits and how to utilize a special needs trust to protect benefits. This article will focus more directly on setting up a special needs trust and recent changes.
The Process of Setting Up a Special Needs Trust
If you have a disabled beneficiary or if you are disabled and receiving SSI disability benefits, how do you go about establishing a Florida special needs trust?
The Federal legislature has established that an individual who is under the age of 65 and is defined as “disabled” under the Social Security Act, cannot set up an SNT on his or her own behalf. So, the SNT must either be established by the Court, a parent, grandparent, or legal guardian. For an SNT to be “self settled” by definition, the Court would be establishing the SNT. Otherwise, a third party such as parent, grandparent or legal guardian would be setting up a “Third Party SNT” for the disabled person. What most people don’t know is that the Federal legislature originally intended to allow the disabled person to set up the SNT on his/her own behalf and the language was accidentally omitted in the legislation. This change was expected and did occur by legislative updates in 2016. With this change, individuals who are under the age of 65 can now self settle” their own SNT without having to petition the courts.
In this author’s humble opinion, an effective way for Florida residents to set up an SNT for an adult who is under the age of 65 is from a parent or grandparent as part of a Florida estate plan in a Florida revocable living trust. I’ve written about this option in reviewing 7 key ways to use your revocable living trust. The reason this is so effective is because the SNT is revocable during the parent’s lifetime or can be updated to suit any changes in law. This approach also provides maximize efficiency upon the death of the parent to assure that the adult child is not disqualified of benefits.
An individual SNT is 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. Here again, a parent of someone who is over age 65 or even a spouse can include provision in a revocable living trust to direct assets to be placed in SNT or Pooled SNT in order to allow the individual to stay qualified for disability benefits.
It is important to remember that SNTs are very specific as to how the trust assets are spent and penalties can occur if the Trust funds are used for certain specific food and shelter items. Also, transfer penalties can occur when people transfer assets into a “self settled” SNT. Transfer penalties can be avoided when a parent or grandparent sets up an individual SNT for an adult child or grandchild.
As I’ve stated in the past, these cases are complicated and should be reviewed with an experienced elder law attorney before making financial decisions.
Steve Gibbs, Esq.
This is an updated version of an original post dated January 7, 2016.