Thousands of Massachusetts families have a family member with special needs. These individuals are blessings to their families, as they elicit the virtues of compassion, patience, and understanding. Unfortunately, it take more than these qualities alone to care for an individual. Caring for those of us with special needs also requires a great deal of financial resources. Fortunately, with the proper planning, including Special Needs Trusts (also called Supplemental Needs Trusts or SNTs), savvy families can take advantage of several public benefit programs to help pay for these expenses.
Two of the most important public benefits programs are Supplemental Security Income (SSI) and Medicaid (called MassHealth in Massachusetts). SSI provides monthly income designed to pay for food and shelter, and MassHealth provides medical and health-related services. While I’ll save their complex qualification regulations for a later post, suffice it say that these are means-tested benefit programs. In order to qualify, applicants typically must be disabled (including many special needs diagnoses) and have extremely limited financial resources.
In determining the financial resources of a special needs child, SSI or MassHealth will deem the income and assets of the parents to be available for the child. This is part of the “deeming rules.” Fortunately, this deeming ends on the child’s eighteenth birthday, making it possible for the young adult to qualify based on their own financial resources.
However, even for the special needs young adult, the financial limitations for SSI and MassHealth eligibility are very restrictive. Often, parents or other family members would like to provide gifts and inheritances, to aid the individual in living his or her life to the fullest. Furthermore, people sometimes become disabled during their lifetimes, as the result of an injury or medical condition. If an SSI or MassHealth recipient receives or inherits money, or if an adult with financial resources suddenly becomes disabled, their so-called resources can actually disqualify them for public benefits. For these people, it seems they are stuck between losing the public benefits that they need, and a life of destitution imposed by the strict financial requirements of those same programs.
Fortunately, we have a solution in the Special Needs Trust. So how does it work? Let’s start with the basics: a trust is an arrangement where one individual (the Trustee) manages assets for the benefit of another individual (the Beneficiary), according to the rule of the trust document. In a Special Needs Trust, the Trustee can utilize the SNT’s assets for any of the Special Needs Beneficiary’s expenses, except for food, shelter, and medical care covered by MassHealth. As long as the Trustee obeys these rules, the assets of the trust will not count when SSI or MassHealth calculates the Beneficiary’s eligibility for benefits.
Why does this work? Let’s investigate:
1) SSI and MassHealth are designed to pay for food, shelter, and certain medical care.
2) A Special Needs Trust can only pay for Supplemental Needs, which include everything except for food shelter and certain medical care.
We know the government does not want to give benefits to someone if they can afford to pay for their own expenses. However, in this situation, the SNT cannot pay for the expenses that SSI and Medicaid provide. Therefore, the SNT will not count towards the eligibility limits of these benefits.
This leads us to three more questions:
1) What can a Supplemental Needs Trust pay for?
Well, it can pay for supplemental needs, which is very broad. It can pay for clothing, vacations, transportation, televisions, computers, automobiles, household goods, furniture, you name it. And while the SNT covers all of these expenses, the Beneficiary receives SSI to pay for their housing and food (which are often further subsidized through Section 8 and food stamps), and MassHealth to cover their medical bills.
2) Can someone with special needs just put all of their money into a Special Needs Trust?
Yes. They can. Which is great, but we have to make a distinction. When a beneficiary places his own assets into an SNT, it is a First-Party Special Needs Trust (sometimes called a (d)(4)(a) Trust). First-Party SNTs must include “payback provisions,” which require the trust to repay MassHealth for any benefits received, upon the beneficiary’s death. However, the payback provisions only extend to the value of the trust on the beneficiary’s date of death. Therefore, we can reduce the payback to zero, simply by using all of the trust’s assets during his life.
If someone else’s assets are funding the trust, for example, through a gift or inheritance, this could be a Third-Party Supplemental Needs Trust. A Third-Party SNT functions the same way as a First-Party SNT, except it doesn’t include the payback provisions. For this reason, it is important to know when to use a First-Party or Third-Party Trust.
3) Why doesn’t every family with a special needs individual utilize these techniques?
Great question. Probably because they haven’t received enough information about how SNTs work, and what benefits they can provide. That’s where you come in. Now that you’ve read this post, you know more about Special Needs Trusts than 99% of Massachusetts residents. So if you know someone that could benefit from SNTs, please tell them to contact a Massachusetts attorney with Special Needs Trust experience today.
PS. To see some interesting statistics on special needs, check out this article from The Inclusive Church.