For the parents of a disabled child, including an adult disabled child, estate planning frequently centers on arranging for the child's care and support after both parents are deceased. The planning for the child's future can be complex, encompassing issues ranging from medical care and living arrangements to education and employment. Most parents wish to provide for their child without compromising the child's eligibility for government programs with financial eligibility requirements. These include Supplemental Security Income (SSI), a federal program, and the medicaid program, a joint federal/State program administered as the "MassHealth" program in Massachusetts. In this situation, the parents should consider establishing a "Special Needs Trust", also known as a "Supplemental Needs Trust" for the benefit of the child.
An individual who is 18 or older is considered to be disabled for the purposes of the SSI and MassHealth programs if he or she is unable to engage in any substantial gainful activity by reason of any physical or mental impairment that has lasted or can be expected to last for a continuous period of not less than 12 months. A disabled individual qualifies for SSI and MassHealth benefits only if he or she has limited financial resources and income. The Supplemental Security Income (SSI) program, which is administered by the Social Security Administration, pays a monthly benefit ranging from $512 to $1091 minus the individual's monthly income. The amount of benefits depends on the individual's living situation (i.e. living alone, living with another, or living in an assisted living facility or any type of skilled nursing facility). In Massachusetts, an individual who is eligible for SSI benefits, also qualifies for medical assistance under the MassHealth program, which pays for hospital stays, doctor bills, prescription drugs, and other health care costs.
Eligibility for SSI and MassHealth benefits also depends on a person's available income and resources. Income is defined broadly to include both earned and unearned income, as well as inheritances, gifts, and in-kind contributions of food and shelter. In Massachusetts, a disabled individual who is under 65 years old qualifies for SSI and MassHealth benefits if he or she earns less than $940/month. This amount applies to individuals receiving benefits in 2008. The amount changes each year, based on federal cost of living indexes. As for resources, an SSI and MassHealth recipient generally cannot have more than $2,000 in "countable assets" or "resources". Countable assets include cash and all types of bank accounts and investments. Certain assets, such as a car and a primary residence, are excluded. When available resources exceed $2,000, SSI and MassHealth benefits are not available to the individual.
In 1993, federal laws were enacted to allow a "Special Needs Trust", also referred to as a "Supplemental Needs Trust", to be established for a disabled individual without compromising his or her eligibility for SSI and medicaid benefits. If properly drafted, the assets held in a Special Needs Trust are not counted as available resources for purposes of determining whether the trust beneficiary is eligible for SSI and medicaid benefits. A Special Needs Trust can be either self-settled or established by a third party (the beneficiary's parents, siblings, or other relatives or friends.) In both cases, the Trust must be irrevocable. A self-settled trust is an Irrevocable Trust funded with a disabled individual's own assets. The assets held in the self-settled trust will not be counted for SSI and medicaid eligibility purposes, as long as the Trust meets the following requirements of federal law:
- A parent, grandparent, legal guardian, or Probate Court Judge must establish the Trust. The disabled individual may not create the Trust.
- The disabled individual must be under age 65 at the time the Trust is created for his or her benefit.
- The Trust must be irrevocable. This means that the terms of the Trust may not be amended after it is established. After assets are transferred to the Trust, the assets transferred to the Trust may only be used and distributed as directed in the Trust Agreement. The disabled individual may not change his or her mind and ask that the Trustee give back the assets transferred to the Trust.
- The disabled individual may not be given the right to demand distributions from the Trust. Instead, the Trustee (the person administering the Trust) must be authorized to use the Trust funds only to supplement governmental benefits available to the beneficiary.
- If the trust holds assets at the time of the beneficiary's death, those assets generally must be used to reimburse the State for the medicaid (MassHealth) benefits paid out for the beneficiary's medical care. MassHealth must be repaid before the Trustee can use the funds remaining in the Trust for funeral expenses and the repayment of other debts, and before the residuary beneficiaries may receive funds from the trust. The medicaid payback must be expressly provided for in the Trust Agreement.
A disabled individual may also benefit from a discretionary Special Needs Trust funded with assets contributed by a third party, such as a parent. This trust is referred to as a third party trust. It may not be funded with assets belonging to the trust beneficiary. The difference between the third party trust and the self-settled trust is that the third party trust does not have to include provisions to repay the Commonwealth of Massachusetts for benefits paid out to the trust beneficiary. After the death of the trust beneficiary, any remaining trust assets can be distributed to family members and friends. Another type of trust arrangement that may be established for an SSI and medicaid beneficiary is a "pooled trust". Such trusts are established and managed by nonprofit organizations and are funded with a disabled individual's own resources. While each beneficiary has a separate account under the trust, the assets of the trust are pooled for investment purposes.
Trust Distributions. If the assets of a Special Needs Trust are not to be counted as available resources for purposes of qualifying the beneficiary for SSI and MassHealth, it is essential that the trust adequately restrict distributions of income and principal. The Trust Agreement should not direct the Trustee to provide for the disabled beneficiary's "health, support, and maintenance", as this would jeopardize the availability of SSI and MassHealth benefits. This language could also lead to the State asserting a claim against the trust assets for the cost of care. Instead, the Trustee should be directed to make distributions of trust funds in a way that will not disqualify the disabled beneficiary from receiving SSI and Medicaid benefits. The Trust may provide the beneficiary with a range of products and services that will enhance his or her quality of life. For example, if help is needed with activities of daily living, such as bathing and dressing, the Trustee can provide funds to hire a personal assistant. Other possible uses of trust fund assets include paying for such items as residential improvements to make the trust beneficiary's home more accessible, upgrading accommodations in a skilled nursing facility, purchasing specially equipped vehicles (such as a wheelchair-accessible van), paying fees for professional services and the cost of vacations, recreational activities, education, and training. The Trustee should not, however, pay for items covered by the SSI or MassHealth programs. The Trust is meant to supplement the benefits provided by these programs.
Conclusion. Planning for a disabled individual's future is a complicated process that requires the consideration of many issues. A Special Needs Trust is but one tool that may by useful in such planning.