How Can Special Needs Trusts Prevent Disruption in Government Aid for the Disabled?

Caring for Disabled Loved Ones Without Endangering Benefits

There are a variety of government benefits available to individuals with disabilities. However, they often don’t fully provide everything that’s needed. It’s possible to assist loved ones with disabilities, but this can sometimes interfere with benefits. Fortunately, special needs trusts can prevent disruption in government aid for the disabled.

When providing financial help for another individual, the government may consider such support a form of income or assets. This can be disastrous since many programs are needs-based. Using a special needs trust as part of your estate planning can allow you to assist loved ones without such assistance counting against their current benefits.
Such benefits come in a variety of forms.

Asset Exclusion

Perhaps the most important way that special needs trusts prevent disruption in government aid for the disabled is by circumventing asset and income limits. These limits exist to prevent abuse of the system, but the strict nature of these limits can leave individuals struggling without government benefits that they should be entitled to.

Setting up a special needs trust provides support for disabled individuals without directly transferring assets or money to them. A trust is an entirely separate legal entity. While the assets held within the trust are earmarked to assist a specific person, those assets are not actually under the ownership of that person.

This means that anything you place in the trust for a loved one will not count toward their income and asset limits for programs such as Medicaid and Supplemental Security Income (SSI). Therefore, a disabled person can access government benefits without first having to exhaust their current financial support.

Supplemental Support

Special needs trusts also prevent disruption in government benefits for the disabled by offering a form of supplemental support. These legal arrangements are structured in such a way to meet the needs of an individual that are not being met by government programs. This distinction is important to prevent trust assets from replacing government program benefits.

While government assistance programs help disabled individuals in many different ways, they are not meant to meet certain needs. For instance, many government programs for the disabled do not cover things like special medical equipment, recreation, education, or therapy. A special needs trust can supplement government benefits by providing for such needs.

Trustee Management

Another way that special needs trusts prevent disruption in government aid for the disabled is by placing assets under the management of a trustee. Rather than transferring ownership directly to your disabled loved one — which would likely count against their government benefits limits — assets are transferred to the trust. Once there, only the trustee can manage the assets and disburse funds.

The trustee can do this as needed by the disabled beneficiary in order to cover expenses or otherwise enhance their lives. By putting management in the hands of the trustee rather than the beneficiary, it’s possible to provide support for a loved one without violating the rules of government programs. Of course, it’s important to realize that there are strict requirements in place for how assets must be managed.

Staying within the confines of these rules through careful management prevents any disbursement that could be viewed as income or assets under government disability programs.

Legal Protections

Placing assets in a special needs trust prevents disruption in government aid for the disabled in many ways. Primarily, these legal instruments prevent disabled beneficiaries from accessing assets in a way that could disqualify them from the benefits they receive.

However, these trusts also provide legal protection from creditors.

While being targeted by creditors wouldn’t typically interfere with government benefits, such action could prove detrimental to your loved one. Any assets you designate to support them should go for that intended purpose without fear that third-party creditors could come after them. A special needs trust will ensure your support goes exactly where it’s supposed to.

Understanding Different Types of Trusts

To fully recognize how special needs trusts prevent disruption in government aid for the disabled, it’s important to understand the types of trusts available. Special needs trusts are divided into first-party and third-party options. A first-party trust is funded by the disabled individual’s own assets – and a third-party trust is funded by someone else’s.

For instance, there are often situations where an individual becomes disabled due to a personal injury accident. If they receive a financial settlement, this money could be placed into a trust. Other potential assets often come from inheritance or disability benefit back pay. On the other hand, third-party special needs trusts are funded by someone other than the disabled individual.

The primary benefit of the third-party option is that there’s no Medicaid payback requirement — which exists with first-party trusts. Any assets remaining in the trust can be passed onto other beneficiaries. Upon the death of an individual with a first-party trust, the remaining assets are utilized to reimburse Medicaid.

Do You Need Legal Assistance?

Far too many people don’t recognize that leaving assets for a disabled loved one can seriously impact their government benefits. Unfortunately, there are families who don’t come to this realization until it’s too late – and at that point, a loved one who needs government support may lose access to it completely.

Clearly, this is serious business. That’s why it’s typically advisable to seek legal assistance. Even minor mistakes can result in invalid legal arrangements, and in some instances, your loved one may inadvertently gain access to funds which count against them in government programs. Trusts are complex legal instruments, so don’t hesitate to seek legal advice.

At Able & Strong Law, our legal team can help you create a special needs trust to prevent disruption in government benefits for disabled loved ones. Contact us at 385-334-5024 to schedule your consultation today.