Academy of Special Needs Planners co-founder Harry S. Margolis was recently interviewed by Vanguard Investments about plannin...Read more
How a 'Sole Benefit Trust' Can Either Hurt or Help a Person With Special Needs
- March 24th, 2014
When helping older clients quickly qualify for Medicaid coverage of long-term care, elder law attorneys often ask right at the outset, "Do you have a relative with special needs?" The reason this question is so important is because under federal Medicaid law, someone applying for Medicaid long-term care (nursing home) benefits can transfer her assets into a special needs trust for the "sole benefit" of a person with disabilities, and that transfer will not disqualify the Medicaid applicant from receiving benefits. In other words, a senior who is willing to give away her assets to a person with special needs, and who meets all the other Medicaid eligibility requirements, can almost always qualify for Medicaid quickly.
This sounds like a great deal for both the Medicaid applicant and the person with special needs, and in many situations, it is a fantastic way to help two people "for the price of one trust." But in some cases, funding a so-called "Sole Benefit Trust" can create problems for a beneficiary who receives certain types of disability benefits.
In order for a special needs trust to meet the government's definition of a Sole Benefit Trust, and thereby enable the senior to qualify for Medicaid when she transfers her assets into it, the special needs trust must provide a benefit only to the person with special needs. (It is important to note that the term Sole Benefit Trust is merely descriptive - many trusts that contain the provisions that allow them to qualify as Sole Benefit Trusts are often referred to as ordinary special needs trusts - however, not all special needs trusts are Sole Benefit Trusts.) Unlike typical special needs trusts, a Sole Benefit Trust cannot have a remainder beneficiary who receives the trust assets once the person with special needs passes away. Instead, at least in some states, the Sole Benefit Trust must pay out all of its assets to the person with special needs over his actuarial life expectancy. So, for example, if the Sole Benefit Trust is funded with $500,000, and the actuarial life expectancy of the trust beneficiary at the time the trust is funded is 25 years, the trust will state that the trustee must pay the beneficiary at least $20,000 a year.
Unfortunately, if a person with special needs who is receiving Supplemental Security Income (SSI) or Medicaid becomes the beneficiary of a Sole Benefit Trust in a state that requires actuarially sound distributions, there is a very strong likelihood that he will lose his benefits. This is because SSI and Medicaid are "means-based" programs that have very strict income and asset limits and they count Sole Benefit Trusts as available assets. So even though the senior who transferred her assets into the Sole Benefit Trust may be able to receive her Medicaid benefits, she may have unknowingly disqualified her relative with special needs from receiving his own important government benefits.
Still, there are many situations where a Sole Benefit Trust can meet the twin goals of protecting a Medicaid applicant and assisting a person with special needs. One major group of people who can benefit from Sole Benefit Trusts are people who only receive Social Security Disability Insurance (SSDI). SSDI is the other main federal benefit program for people with special needs and it does not have income and asset restrictions. If a person with special needs is receiving SSDI and is never going to qualify for SSI or Medicaid because his SSDI payments are too high, he can probably be the beneficiary of a Sole Benefit Trust since he is not worried about having extra income or assets. In these cases, everyone wins -- the senior can qualify for long-term care, and the person with special needs receives additional income.
Sole Benefit Trusts can assist seniors as a quick-fix Medicaid spend-down tool, and they accomplish that goal admirably. However, uninformed planning could seriously harm the person with special needs at the other end of the trust. Seniors considering creating a Sole Benefit Trust for a person with special needs, or the person with special needs' family members, should always consult a qualified special needs planner before creating any trust for the benefit of a loved one. To find a planner near you, click here.
Last Modified: 03/24/2014