Transition Planning – Financial Management

In order to stay under these income and asset limits, most special needs planners will use two different kinds of special needs trusts to allow a family or even the disabled person themselves to put aside resources to help support them and still qualify for public benefits. These trusts, if appropriately drafted, do not count as assets of the person with the disability.

The most popular trust is typically known as a Supplemental Needs Trust (“SNT”). This trust is funded with other people’s money, not money of the person with the disability. In most instances, the trust is funded at the death of the parents of the disabled person, but may also be funded by the parents during their lifetimes. The trust may also hold gifts from anybody else that would like to provide support for the disabled beneficiary. This trust is set aside for the benefit of the disabled person and must be completely discretionary. In other words, the trustee has the absolute authority to decide what distributions to make from the trust. The disabled person may not be a trustee. The trust is held for the lifetime of the disabled beneficiary and the original creators of the trust get to decide who the successor trustees and beneficiaries will be.

In addition to that trust, we also have a provision under the Social Security laws5 that allows disabled people to take their own money and put it in a trust that will be available for their benefit but will not count against them when qualifying for public benefits. This is typically know as a (d)(4)(A) trust or an OBRA 93 trust. It seems impossible that the government would allow this, but there is a catch. If a disabled beneficiary does utilize a trust of this type, when he or she dies, the trust must name as the successor beneficiary each state that has provided Medicaid benefits to the disabled beneficiary. The state Medicaid agency may recoup or “recover” all costs of providing medical care to that disabled beneficiary for their entire lifetime.

This means that if a person with a disability passes away and there is $100,000 left in the trust, a state may place a lien on those assets to satisfy any medical payments it has made throughout the person’s lifetime. In addition, there are other significant differences between a (d)(4)(A) and an SNT. A (d)(4)(A) trust can only be established by a parent, grandparent, legal guardian of the disabled beneficiary, or by court order. The trust can only be established and funded for a person under the age of 65 years. Lastly, the trust must be irrevocable, meaning it cannot be changed or terminated.

Although these requirements can be very daunting, a (d)(4)(A) trust is very helpful to a person with a disability under certain circumstances so that they do not lose valuable benefits provided by the federal or state government. The kinds of circumstances I often see are:

  1. Estate planning mistakes resulting in money left directly to the individual with disabilities;
  2. Receipt of child or adult support payments;
  3. Settlements from accident or other civil tort claims; and
  4. Lottery winnings.

For more information or schedule a consultation, please contact us at (508) 861-3453 or email us through the following form:

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5 42 U.S.C. 1396p (d)(4)(A)