Special Needs Trusts

Some families must assume special responsibilities in order to care for a loved one who will require help through adulthood due to physical or mental challenges. To help these families, The Probate Pro offers Special Needs Planning. This planning uses state and federal Trust Laws to protect the assets of a person with disabilities.

Such planning can be used to effectively coordinate your loved one’s care needs and to enhance the quality of your loved one’s life. Sometimes called a “Supplemental Needs Trusts,” Special Needs Trusts can help preserve assets to care for an individual with special needs after becoming eligible for government benefits, including Medicaid.

A Supplemental Needs Trust (frequently called a Special Needs Trust, or simply an “SNT”) is an important estate planning tool. The purpose of a Supplemental Needs Trust is to safeguard certain assets (generally a settlement or an inheritance) without disqualifying the individual from eligibility for public benefits. Understanding permissible distributions is critical to the effective administration of the Trust.

One of the duties of the Trustee of a Supplemental Needs Trust is to understand what public benefits programs might be available to the beneficiary and how the receipt of income, or a provision of food or shelter, might affect eligibility. Once the Supplemental Needs Trust is created by a qualified estate planning attorney, the Trustee has the responsibility to use the Trust funds for the benefit of the individual without violating the many complicated and often changing rules of Social Security and Medicaid.  

Conceptually, the idea is that permissible distributions from the Supplemental Needs Trust must be “supplemental” to those need-based benefits being provided by the government.

  1. Automobile/Van
  2. Accounting services
  3. Acupuncture / Acupressure
  4. Appliances (TV, VCR, stereo, Microwave, stove, refrigerator, washer/dryer)
  5. Bottled Water or water service
  6. Bus pass/public transportation costs
  7. Camera, film recorder and tapes, development of film
  8. Clubs and club dues (record clubs, book clubs, health clubs, service clubs, zoo, Advocacy Groups, museums)
  9. Computer hardware, software, programs
  10. Internet services
  11. Conferences
  12. Courses or classes (academic or recreational) including supplies
  13. Curtains, blinds, drapes and the like
  14. Dental work not covered by Medicaid, including anesthesia
  15. Down payment on home or security deposit on apartment.
  16. Dry cleaning and/or laundry services
  17. Elective surgery
  18. Fitness equipment
  19. Funeral expenses
  20. Furniture, home furnishings
  21. Gasoline and/or Maintenance for automobile
  22. Haircuts / Salon services
  23. Holiday Decorations, parities, dinner dances, holiday cards
  24. Home alarm and/or monitoring/response system
  25. Home improvements, repairs and maintenance (not covered by Medicaid), including tools to perform home improvements, repairs and maintenance by homeowner.
  26. Home Purchase (to the extent not covered by benefits)
  27. House cleaning / maid service
  28. Insurance (automobile, home and/or possessions)
  29. Legal Fees/Advocacy
  30. Linens and towel
  31. Massage
  32. Musical Instruments (including lessons and music)
  33. Non-food grocery items (laundry soap, bleach, fabric softener, deodorant, dish soap, hand and body soap, personal hygiene products, paper towels, napkins, Kleenex, toilet paper, any household cleaning products)
  34. Over the counter medications (including vitamins and herbs, etc.)
  35. Personal Assistance Services not covered by Medicaid
  36. Pet and pet’s supplies, veterinary services
  37. Physician specialists if not covered by Medicaid
  38. Private counseling if not covered by Medicaid
  39. Repair services (appliance, automobile, bicycle, household, fitness equipment)
  40. Snow removal/Landscaping/Lawn Service
  41. Sporting goods/equipment/uniforms/team picture
  42. Stationary, stamps, cards, etc.
  43. Storage Units
  44. Taxi cab
  45. Telephone service and equipment, including cell phone, pager, etc.
  46. Therapy (Physical, Occupational, Speech) not covered by Medicaid.
  47. Tickets to concerts or sporting events
  48. Transportation (automobile, motorcycle, bicycle, moped, gas, bus passes)
  49. Vacation (for the beneficiary only)
  1. Basic shelter related expenses
  2. Utilities
  3. Food
  4. Basic items of clothing
  5. Cash for any purposes
  1. Paying for a service already paid for by another source
  2. Distribution not in the best interest of the beneficiary (made primarily for the benefit of another person)

As with other trusts, the trustee of a special needs trust is prohibited from self-dealing. That means no investment of trust assets in the trustee’s business or assets, no commingling of trust and personal assets, no borrowing from the trust, no purchase of goods or services (by the trust) from the trustee, and no sale of trust assets to the trustee.

Special Needs Trust Definitions

For most of my clients, discussing whether a Special Needs Trust is the appropriate strategy for them requires a basic understanding of some terms. 

The following are the Special Needs Trust Definitions of the most commonly used terms:

The beneficiary is the person whose benefits the Special Needs Trust is established to protect. The beneficiary of a Special Needs Trust will generally be a low-income individual who is either disabled, blind, or elderly, and have limited income and few assets.

The trustee is the person (or entity) responsible for managing the trust assets and administering the trust provisions. In the event that there are two or more trustees acting at the same time, each is referred to as a co-trustee. The beneficiary can never serve as the trustee of their own Special Needs Trust. The trustee may also be a professional trustee, such as a corporate bank trustee or a lawyer.

For most beneficiaries of a Special Needs Trust, the term “disability” or “disabled” refers to the same benefit eligibility requirements used to determine eligibility for Social Security Disability

This includes the inability to perform any substantial gainful employment.

The grantor of the Special Needs Trust is the person whose assets funded the trust. The grantor is often referred to as the “settlor” or “trustor.” There can be more than one grantor for any given trust. The term grantor becomes confusing for a Special Needs Trust because often the actual grantor (the one whose assets funded the trust) is often not the same person that signs the Special Needs Trust.

Supplemental Security Income, better known by the initials “SSI,” is a federal government benefit program available to low-income individuals who are disabled, blind, or elderly, and have limited income and few assets. SSI eligibility rules form the basis for most other government program rules.

Social Security Disability Insurance, better known by the initials “SSDI” or “SSD” is a federal government benefit program available to individuals with a disability who either have sufficient work history prior to becoming disabled, or who are entitled to receive benefits by virtue of being a dependent or survivor of a disabled, retired, or deceased insured worker. There is no “means” test, which means that eligibility is not based on limited income or assets.  If you qualify for SSDI you may also be eligible to qualify for SSI and/or Medicaid benefits.

An irrevocable trust is simply a trust that, once signed, cannot be revoked or amended. Generally, Special Needs Trusts are irrevocable trusts.

A revocable trust is a trust that by its terms allows it to be revoked or changed.

Medicare is a health-care program operated by the federal government. Medicare benefits are afforded to all those age 65 and over (provided that the person would be entitled to receive Social Security benefits if they chose to retire, whether or not they actually retired), and those under 65 who have been receiving SSDI for at least two years.

Medicaid is another health-care program. It differs from Medicare in three distinct ways:

    1. It is run by state governments. 
    2. It is available to those who meet financial eligibility requirements rather than being based on the age of the recipient
    3. It covers all necessary medical care

A Patient Advocate Designation, which is commonly referred to as a Health Care Power of Attorney, is a document that allows you to nominate an individual to make health care decisions on your behalf if you are unable to do so. This document also allows you to express your wishes regarding life-sustaining treatment if you become comatose or terminally ill. 

Having a Patient Advocate Designation in place is vitally important to individuals of all ages and is a part of any comprehensive estate plan. To ensure that you are adequately protected, The Probate Pro includes a Patient Advocate Designation in each estate plan we draft.

A Durable Power of Attorney, like a Patient Advocate Designation, is a document that allows you to nominate someone to make decisions on your behalf. But, instead of healthcare decisions, the Durable Power of Attorney allows the named individual to make decisions regarding your finances, property, and other beneficial interests. A Durable Power of Attorney can become effective immediately upon signature or upon your incapacity, depending on your specific needs.

The Social Security Administration (SSA) manages the Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) programs. While both of these programs offer cash benefits for people with disabilities, the eligibility requirements for each are different.

SSDI is funded through payroll taxes. To get SSDI, you must be an adult between the ages of 18 and 64 and have earned a certain number of “work credits” by working and paying into the Social Security system for a certain amount of time. After you receive SSDI for two years, you’ll become automatically eligible for Medicare.

Under SSDI, the spouse and children of a person with a disability are eligible to receive partial dependent benefits even if they don’t have a disability themselves.

Social Security disability benefits are paid after you have been disabled continuously throughout a period of five full calendar months. Disability benefits are paid beginning with the sixth full month after the date your disability began. You’re not entitled to benefits for any month during this five-month waiting period. The amount of the monthly benefit after the waiting period is based upon how much you’ve earned while working.

SSI is a program that is strictly need-based, according to income and assets, and is funded by general fund taxes. To meet the SSI income requirements, you must have limited income and resources.

An adult or child who has a disability must meet all of the following requirements:

  • Have limited income
  • Have limited resources
  • Be a U.S. citizen or national or in one of certain categories of aliens
  • Live in the U.S. or Northern Mariana Islands.

The monthly payment is based strictly on financial need and varies up to the maximum federal benefit rate. Some states add money to federal SSI payments. Approval for benefits generally takes three to six months. Once you’re approved for SSI, you’ll get benefits retroactive to the date of your application.

If you have a disability which prevents you from working, and you appear to meet all other eligibility requirements, it is possible to get SSI earlier. Sometimes on the day you apply.

In most states (including Michigan), people who get SSI are automatically eligible for Medicaid.

If you are age 18 or older, we may consider you “disabled” if you have a medically determinable physical or mental impairment (including an emotional or learning problem) which:

  • Results in the inability to do any substantial gainful activity
  • Can be expected to result in death
  • Has lasted or can be expected to last for a continuous period of not less than 12 months.

Examples of payments or services Social Security does not count as income for the SSI program include but are not limited to:

  • the first $20 of most income received in a month
  • the first $65 of earnings and one–half of earnings over $65 received in a month
  • the value of Supplemental Nutrition Assistance Program (food stamps) received
  • income tax refunds
  • home energy assistance
  • assistance based on need funded by a State or local government, or an Indian tribe
  • small amounts of income received irregularly or infrequently
  • interest or dividends earned on countable resources or resources excluded under other Federal laws
  • grants, scholarships, fellowships or gifts used for tuition and educational expenses
  • food or shelter based on need provided by nonprofit agencies
  • loans to you (cash or in–kind) that you have to repay
  • money someone else spends to pay your expenses for items other than food or shelter (for example, someone pays your telephone or medical bills)
  • income set aside under a Plan to Achieve Self–Support (PASS). See the SSI Spotlight on Plan to Achieve Self–Support
  • earnings up to $1,780 per month to a maximum of $7,180 per year (effective January 2015) for a student under age 22. See the SSI Spotlight on Student Earned Income Exclusion
  • the cost of impairment–related work expenses for items or services that a disabled person needs in order to work. See the SSI Spotlight on Impairment–Related Work Expenses
  • the cost of work expenses that a blind person incurs in order to work. See the SSI Spotlight on Special SSI Rule for Blind People Who Work
  • disaster assistance
  • the first $2,000 of compensation received per calendar year for participating in certain clinical trials
  • refundable Federal and advanced tax credits received on or after January 1, 2010
  • certain exclusions on Indian trust fund payments paid to American Indians who are members of a federally recognized tribe

A “power of attorney” is a legal instrument which grants another person the authority to act as your legal representative, and to make binding legal and financial decisions on your behalf.

A general power of attorney is unlimited in scope and duration, and permits the named individual to act as your legal representative in relation to financial matters until such time as it is revoked.

A specific power of attorney imposes limits upon the named representative, and may restrict the scope of that person’s powers to a single type of conduct or a single transaction. For example, the person could be granted the power to engage in financial transactions from a specific checking account, or to sign the closing documents for a specific real estate transaction.

A power of attorney may become effective at the time it is signed. In the alternative, it may become effective at a future date described within the document, or it may become effective upon the occurrence of a specific future event or contingency (such as your becoming disabled). 

A power of attorney that becomes effective at a future date is sometimes called a “springing power of attorney”.

No. When you die, the Power of Attorney terminates and is ineffective.

A Patient Advocate Designation is a document in which the patient appoints another individual to act as their Patient Advocate. The Patient Advocate makes decisions for the patient concerning their care, custody, and medical treatment if the patient becomes incapacitated. The document often sets forth the client’s wishes concerning medical treatment, care, and whether to withhold or withdraw life-sustaining treatment.

The Patient Advocate makes decisions concerning care, custody and medical treatment in the event that the patient is unable to do so. The Patient Advocate may decide to withhold or withdraw life-sustaining treatment if the patient has expressly authorized this and acknowledged that death could result.

Patients may appoint almost any adult to be their Patient Advocate. A family member is often selected, such as their spouse, adult child, a friend, or someone else that they trust.

Yes. A patient can revoke or change their Medical Power of Attorney at any time and in any manner by which the patient is able to communicate an intent to change or revoke.

A Living Will, also called a Medical Directive, sets forth the patient’s wishes concerning life-sustaining treatment if they are terminally ill and treatment would only artificially prolong the dying process. 

Michigan statutory law does not recognize the so-called Living Will, or Medical Directive.

An advance directive is a written document in which you specify what type of medical care you want in the future, or who you want to make medical decisions for you, should you lose the ability to make those decisions for yourself.

Having an advance directive provides you some assurance that your personal wishes concerning medical and mental treatment will be honored at a time when you are not able to express them.

No. The decision to have an advance directive is purely voluntary. No family member, hospital, or insurance company can force you to have one, or dictate what the document should say if you decide to write one. A hospital, nursing home, or hospice organization cannot deny you service because you do or don’t have an advance directive.

Three types:

    1. A durable power of attorney for health care
    2. A living will
    3. A do-not-resuscitate declaration

There is also a declaration of anatomical gift, which would take effect when you die.

Yes. You may choose to have any number of advance directives, or to have none at all.

Your wishes cannot be followed if no one is aware of them. It can also be a burden for your advocate to make a decision for you without guidance. If you have specific desires, make these clear to your patient advocate in talking to him or her. Also consider including these wishes in the document.

Your patient advocate has a duty to take reasonable steps to follow your desires and instructions, both oral and written, expressed while you were able to participate.

Yes. A patient has the right to inspect and copy his or her hospital or nursing home records. Your patient advocate has the same right you have, once you are unable to participate in treatment decisions.

Any person age 18 or older is eligible. You can appoint your spouse, an adult child, a friend, or other individual. 

You should choose someone you trust, who can handle the responsibility, and who is willing to serve.

A do-not-resuscitate declaration (DNR declaration) is a written document in which you express your wish that if your breathing and heartbeat cease, you do not want anyone to attempt to resuscitate you.

A hospice patient who is home to die as peacefully as possible might wish to sign a DNR declaration.

No. For example, you may be in good health but still not want to be resuscitated should your heart and lungs fail.

Yes. A Michigan law provides these documents are valid in settings other than hospitals or nursing homes.

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