If you want to leave money or property to a loved one with a disability, you must plan carefully. Otherwise, you could jeopardize your loved one’s ability to receive Supplemental Security Income (SSI) and Medicaid benefits. By setting up a “special needs trust” in your will, you can avoid some of these problems.
Owning a house, a car, furnishings, and normal personal effects does not affect eligibility for SSI or Medicaid. But other assets, including cash in the bank, will disqualify your loved one from benefits. For example, if you leave your loved one $10,000 in cash, that gift would disqualify your loved one from receiving SSI or Medicaid.
How a Special Needs Trust Can Help
A way around losing eligibility for SSI or Medicaid is to create what’s called a special needs or supplemental needs trust. Then, instead of leaving property directly to your loved one, you leave it to the special needs trust.
You also choose someone to serve as trustee, who will have complete discretion over the trust property and will be in charge of spending money on your loved one’s behalf. Because your loved one will have no control over the money, SSI and Medicaid administrators will ignore the trust property for program eligibility purposes. The trust ends when it is no longer needed — commonly, at the beneficiary’s death or when the trust funds have all been spent.
How Trust Assets Can Be Used
Trust assets can be used for almost anything that is not illegal or contrary to the terms in the trust. Because the primary purpose of a special needs trust is to enhance the quality of life of the beneficiary with a disability, the list of things that can be paid for is quite broad. Generally, trust funds can be used to pay for:
- caregiving, such as a personal attendant or therapies not paid for by Medicaid
- experiences, such as travel or concerts
- services, such as a cell phone, internet, or cleaning service
- pet care, such as pet food or veterinarian care, or
- things, such as a computer, clothing, or new furniture.
- Payments for food or shelter are more complicated because they generally trigger reduction in SSI benefits. However, even though it’s tricky, it often still makes sense for trustees to use trust funds
- for food and shelter because there are exemptions and rules that make the trade-off worthwhile.
- On the other hand, trust funds cannot be used for things that would make the beneficiary ineligible for government benefits, such as large gifts of cash.