Are Special Needs Trusts Always Appropriate?

Carl is a nephew of my clients. He’s 23 years old and has learning and physical disabilities, living with his parents. They were told by several professionals that they should see me about building a Special Needs Trust into their estate plan for Carl. A Special Needs Trust in Florida describes any trust that includes provisions designed to protect a physically or mentally disabled trust beneficiary’s eligibility for need-based government benefits such as Medicaid or Supplemental Security Income (“SSI”). The trusts include restrictions on how funds may be used so that distributions are not made to pay for items that are supposed to be provided exclusively from government assistance programs for which the beneficiary may qualify now or sometime in the future.

Medicaid has a low ceiling on the amount of a recipient’s countable assets – the limit is approximately $2,500 this year, and the individual cannot have gross monthly income exceeding $2,532.00. Assets held by a Florida Special Needs Trust are not counted for purposes of Medicaid eligibility. The trust agreement typically allows the trustee to distribute income or assets to a beneficiary only if the distribution does not disqualify or diminish a beneficiary’s government benefits.

While trust assets are not counted for eligibility, trust income can be distributed to improve the recipient’s quality of life by paying for living expenses not covered by Medicaid. Medicaid pays for a disabled recipient’s basic needs such as mortgage payments, rent, food and utilities. A Florida Special Needs Trust cannot supplant or duplicate Medicaid’s need assistance. If it does, the trust distributions may disqualify the beneficiary. A Special Needs Trust can supplement the government’s provision of basic needs by providing additional benefits such as personal grooming, clothing and dry cleaning, computers and televisions, musical instruments, companionship, housekeeping and cooking, medical insurance and medical therapies and equipment.

Are Special Needs Trusts always appropriate? That depends on whether the recipient’s inheritance is sufficient to provide for him for his lifetime. Since Medicaid’s aid is not terribly generous, a wealthy client may wish to forgo the eligibility concerns, and not constrain the trustee from making distributions for fear that it will disqualify the beneficiary. Medicaid is a government program designed to provide for the less fortunate among us. If a beneficiary is going to be left several million dollars, for example, it might be wise to create a General Needs Trust that can one day be converted into a Special Needs Trust if the situation warrants.

Another factor to consider is whether the beneficiary resides in Florida. If you are a Florida resident but the individual who you wish to help is not, then you may want to direct your attorney to consult with a specialist in the beneficiary’s home state. While Medicaid is a federal program, it separately administered by each state. Consequently, the requirements may differ.

In Florida, for example, your homestead is an exempt asset when determining Medicaid eligibility. Also, most states have a payback requirement meaning that the state has a claim against the beneficiary’s estate when he dies. If a beneficiary can obtain adequate private health insurance, they are better off with that policy than Medicaid to avoid the payback requirements.

As you can see, there are many factors to consider when determining whether a Special Needs Trust is appropriate in your estate plan for a disabled beneficiary. Rather than directing your attorney to draft one into your plan, first ask if qualifying for government aid is worth the restrictions.

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