How a supplemental needs trust can help parents of disabled children

If you have a child or other family member with a disability that qualifies for SSI and/or MassHealth benefits, you may already be familiar with special needs trusts (SNTs). If you are going to leave assets or life insurance proceeds to such a family member when you pass, or if you are giving such a family member monetary gifts, it is essential that you plan in advance! Here are a few key points about SNTs and how they can be used in this planning.

Note: As always, this article is provided for background and education only. It is not legal advice. This is a particularly complex subject and I can’t cover all the dimensions in one article, so if you believe you may benefit from establishing an SNT, consult an estate planning or disability law attorney. While some of this information may apply in other states, my focus is on Massachusetts law and this article does not apply in all states.

When giving money to a person who receives SSI/SSDI, MassHealth or other government  benefits due to a disability, one risk that you face is that by receiving the money the recipient will lose eligibility for those benefits. In fact, for a disabled beneficiary in this position, I can’t overstate the importance of proper planning because in common scenarios government benefits are reduced by the entire amount of the bequest or life insurance payment, the net effect being that instead of going to the beneficiary the money is lost entirely.

Instead of giving gifts, bequests or benefits directly to the individual, you may be able to direct those funds to an SNT. An SNT is a trust that pays for the supplemental needs of a person receiving government benefits. Supplemental needs are those not covered by a government program. The particular needs considered will vary depending on what benefits the individual receives, but might include transportation, education, clothing and entertainment, and the trust might be written to allow for changing needs if the recipient’s benefits eligibility changes.

Ideally, the trust should be established by the individual’s parent or guardian. Such trusts have the highest degree of legal protection – so high, in fact, that contributions can be exempted from the MassHealth 5-year lookback for . This should be done as part of the parents’ estate plan, as part of the plan for overall disposition of their assets and asset protection. If carefully constructed in advance, the trust can protect 100% of the money left to the beneficiary.

An SNT alone is not a complete plan. It has a few drawbacks. Its uses are limited, and usually any funds remaining after the beneficiary’s passing will go to the state as partial reimbursement for benefit program payments. However, as one part of a complete estate plan, it is an excellent tool for helping a disabled family member.

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