Does a Supplemental Needs Trust have an Impact on Government Benefits?

Supplemental Needs Trusts allow disabled individuals to retain inheritances or gifts without eliminating or reducing government benefits, like Medicaid or Supplemental Security Income (SSI). There are cases where the individual is vulnerable to exploitation or unable to manage their own finances and using an SNT allows them to receive additional funds to pay for things not covered by their benefits.

Having an experienced estate planning attorney properly create the SNT is critical to preserving the individual’s benefits, according to a recent article titled “Protecting Government Benefits using Supplemental Needs Trusts” from Mondaq.

Disabled individuals who receive SSI must be careful, since the rules about assets from SSI are far more restrictive then if the person only received Medicaid or Social Security Disability and Medicaid.

The trustee of an SNT makes distributions to third parties like personal care items, transportation (including buying a car), entertainment, technology purchases, payment of rent and medical or therapeutic equipment. Payment of rent or even ownership of a home may be paid for by the trustee.

The SNT may not make cash distributions to the beneficiary. Payment for any items or services must be made directly to the service provider, retailers, or other entity, for benefit of the individual. Not following this rule could lead to the SNT becoming invalid.

SNTs may be funded using the disabled person’s own funds or by a third party for their benefit. If the SNT is funded using the person’s own funds, it is called a “Self-Settled SNT.” This is a useful tool if the disabled person inherits money, receives a court settlement or owned assets before becoming disabled.

If someone other than the disabled person funds the SNT, it’s known as a “Third-Party SNT.” These are most commonly created as part of an estate plan to protect a family member and ensure they have supplementary funds as needed and to preserve assets for other family members when the disabled individual dies.

The most important distinction between a Self-Settled SNT and a Third-Party SNT is a Self-Settled SNT must contain a provision to direct the trust to pay back the state’s Medicaid agency for any assistance provided. This is known as a “Payback Provision.”

The Third-Party SNT is not required to contain this provision and any assets remaining in the trust at the time of the disabled person’s death may be passed on to residual beneficiaries.

Many estate planning attorneys use a “standby” SNT as part of their planning, so their loved ones may be protected, in case an unexpected event occurs and a family member becomes disabled.

References: Mondaq (May 27, 2022) “Protecting Government Benefits using Supplemental Needs Trusts”

 

 

Should Young Adults have a Will?

Young adults are starting to get their affairs in order, contacting estate planning attorneys because they are concerned about dying unexpectedly. A study by Caring.com, a senior referral service, said that almost a third of young adults, ages 18—34, had a will in 2021, compared to 18% in 2019. The leap, according to a recent article in The Wall Street Journal titled “Millennials, Feeling Their Mortality During Covid-19, Start Writing Their Wills” can be directly attributed to the Covid-19 pandemic.

The concern over continued uncertainty regarding whether the young adults themselves or their family members will become sick, and die is all too real. Millennials also haven’t experienced another event: sharply rising inflation. The general sense of unease and instability is leading young adults to make sure they have wills and healthcare proxies in place to give some sense of control in the face of an unstable world. Those with young families are especially concerned, as new variants of Covid emerge.

Before the pandemic, young adults, even with those with children, didn’t feel the need to have an estate plan created. That’s changed.

Just under half of all Americans have a will, and people 65 and up have traditionally been more likely to have one, according to a May 2021 study by Gallup. This number has been relatively stable since about 1990.

If you die without a will, the state law determines how to distribute assets, under court supervision. The process is slower and far more costly for survivors. In many situations, not having a will can be catastrophic. If beneficiaries with special needs inherit funds outright, and not in a Supplemental Needs Trust (or a Special Needs Trust), they could lose government benefits necessary for their day-to-day lives.

Wills are also used to name a guardian to care for minor children. If both parents die and there is no will, a court will decide who should raise a child. The court may not necessarily name a family member, and the person may not be who the parents or grandparents might have wished.

Similarly, news about young celebrities dying unexpectedly also pushes the “go” button for millennials to get their wills completed. When Los Angeles Angels pitcher Tyler Skaggs died of a fentanyl overdose in 2019, calls to estate planning attorneys from millennial males increased in many law offices. At the same time, millennials who are aware of the importance of a will for themselves and their families are pressing their parents to get their wills prepared or updated.

In every case, having a will is far less costly than not having a will. The cost of preparing a will depends on many factors: the size of the estate, the complexity of the family situation, the nature of assets and where the will is being prepared. Other documents are necessary. For example, every adult should have a power of attorney, health care proxy, living will and possibly a trust.

The last gift you leave your heirs is a plan and organized documents, so they can grieve properly after you pass, rather than having to embark on a scavenger hunt through decades of paperwork and old files.

Reference: The Wall Street Journal (Dec. 6, 2021) “Millennials, Feeling Their Mortality During Covid-19, Start Writing Their Wills”