Special Needs Planning and Administration

"Special Needs Planning” is trust-based estate planning to allow those who are SSI or Medicaid beneficiaries to hold funds in reserve so that the funds are not considered "available” by SSI or Medicaid. Typically, these beneficiaries have a sudden receipt of inheritance or proceeds from a law suit. Or it may be that the individual is injured and unable to work and needs Medicaid or SSI to survive but needs to preserve their existing estate. These funds can be "entrusted” to a Trustee who holds the fund for the benefit of the subsidy recipient, exempt from resource consideration by SSI or Medicaid, preserving their benefit eligibility. Generally, three types of trusts are used for Special Needs estate planning: "First Party Trusts;” "Third Party Trusts;” and "Pooled Trust Funds.”

"First Party Trusts” are trusts created with the funds or property which belongs to the Beneficiary who is not yet 65 years of age. These Trusts require that if property or money remains in the Trust when the Trust terminates (at death of a Beneficiary or voluntarily), the state Medicaid agency must be reimbursed up to the amount Medicaid spent on the Beneficiary. These Trusts are permitted by Federal Social Security Law at 42 U.S.C. 1396p (d)(4)(A). These Trusts are considered "sole benefit” Trusts because only the one Beneficiary can receive support from the Trustee.

"Third Party Trusts” are created with a contribution from a "third party” (someone other than the Beneficiary.) These Trusts are often created in Wills or "funded” at the time a parent or grandparent dies. They are considered as "discretionary trusts” that permit the trustee to have "discretion” about how the trust funds are used or not used. The Trustee may refuse to pay cash to the beneficiary because receipt of cash from the trust may cause a disqualification for SSI or Medicaid for the beneficiary. A major difference is that Medicaid is not reimbursed when the beneficiary’s interest ends.

"Pooled Trust Funds” are group trusts controlled by a Trustee on behalf of many beneficiaries who participate. Each beneficiary has his/her own share of the fund. The advantage of pooled funds is that small trust accounts can group to be more attractive to professional management as well as enhanced return on investment. Some states allow individuals to create their accounts even if over age 65

Elder Law Lexington – McClelland & Associates specializes in Special Needs Planning & Administration for older clients.