Special Needs Trusts, Disability Planning, and MIABLE Accounts
If you currently provide care for a child or loved one with special needs (such as mental or physical disabilities), you must have contemplated with concern about what may happen to them when you are no longer able to provide and care for them.
While you can certainly provide that they receive money and assets, such a bequest may prevent them from qualifying for essential benefits under the Supplemental Security Income (SSI) and Medicaid programs. However, public monetary benefits provide only for the bare necessities such as food, housing and clothing. As you can imagine, these limited benefits will not provide those loved ones with the resources that would allow them to enjoy a richer quality of life. But if parents leave any assets to their child who is receiving public benefits, they run the risk of disqualifying the child from receiving them. Fortunately, the government has established rules allowing assets to be held in trust, called a “Special Needs” or “Supplemental Needs” Trust for a recipient of SSI and Medicaid, as long as certain requirements are met.
Our law firm can help you set up a Special Needs Trust so that government benefit eligibility is preserved while at the same time providing assets that will meet the supplemental needs of the person with a disability (those that go beyond food, shelter, and clothing and the medical and long term supports and services of Medicaid). The Special Needs Trust can fund those additional needs. In fact, the Special Needs Trust must be designed specifically to supplement, not replace public benefits. Parents should be aware that funds from the trust cannot be distributed directly to the disabled beneficiary. Instead, it must be disbursed to third parties who provide goods and services for use and enjoyment by the disabled beneficiary.
The Special Needs Trust can be used for a variety of life-enhancing expenditures without compromising your loved ones’ eligibility such as:
- Annual check-ups at an independent medical facility
- Attendance of religious services
- Supplemental education and tutoring
- Out-of-pocket medical and dental expenses
- Transportation (including purchase of a vehicle)
- Maintenance of vehicles
- Purchase materials for a hobby or recreation activity
- Funds for trips or vacations
- Funds for entertainment such as movies, shows or ballgames.
- Purchase of goods and services that add pleasure and quality to life: computers, videos, furniture, or electronics.
- Athletic training or competitions
- Special dietary needs
- Personal care attendant or escort
Special Needs Trusts are a critical component of your estate planning if you have disabled beneficiaries for whom you wish to provide after your passing. Generally, Special Needs Trusts are either stand alonetrusts funded with a separate asset like a life insurance policy or they can be a sub-trust in your existing living trust.
What is a Special Needs Trust?
A special needs trust is an estate planning tool for parents who are concerned about the financial well-being of their disabled child after their deaths Families have several estate planning options in providing for a special needs loved one.
· The special-needs person may be disinherited. This is an option if the assets available for the special needs person are small.
· Give the special needs person the assets outright. Caution should be exhibited with this option as it could result in government interference or the special needs person spending it unwisely.
· Another option is to give the funds to a third party for the care and well-being of the special needs person. Be careful! The third party you chose has no legal obligation to spend it on the special needs person. It is subject to the owner’s creditors and can have a negative effect on his or her income or estate plan. Also, when the owner dies, his or her heirs may not be trusted to care for the special needs person heir.
· This leaves us with the last and usually best option, the Special Needs Trust (SNT).
What is the Purpose of a Special Needs Trust?
The purpose of an SNT is to enhance the quality of life of individuals with disabilities without jeopardizing their continued access to government benefits. Special Needs Trusts are used to allow one person to set aside funds for the care and benefit of a special needs person. The key to an SNT is that they are drafted to be totally discretionary so that the special needs person cannot demand distributions. Since the assets are not legally available to the beneficiary on demand, they are not considered assets when the special needs person applies for government benefits.
Special Needs Trusts are also used to manage and shelter funds of the special needs person gained through inheritance, life insurance, or personal injury award. As long as the special needs person is not the trustee, there is no interference with the special needs person’s ability to qualify for SSI or other government benefits. SNT’s must conform to government requirements to assure that the special needs person continues to be eligible for SSI or Medicaid.
Types of Special Needs Trusts
There are three main types of special needs trusts:
· A Third Party SNT is set up and funded by a donor/grantor who may be a parent or other person with no legal duty to support the disabled individual. Once a trust is established, anyone can gift or leave money for the benefit of the person to the trust.
· An OBRA-93 Payback SNT is a trust established by a parent, grandparent, legal guardian or court, but which is funded with the assets of a beneficiary under age 65. When the beneficiary dies, the State has a right to be “paid back” out of the remainderman of the trust for Medicaid expenditures given to the beneficiary.
Pooled Trusts are trusts that, by law, are established and maintained by a not-for-profit organization. These trusts allow families to pool their resources with other families to maximize the investment and streamline management of the trust. Beneficiaries of these trusts usually receive earnings based on their share of the principal. A “sponsor” (the person who creates the trust) signs a sponsor agreement with the not-for-profit establishing an individual trust account.
MICHIGAN’s “MI” ABLE ACCOUNTS
NMEL can help in establishing a MIABLE account instead or alongside a special needs Trust
MI ABLE stands fort Achieving a Better Life Experience. These are bank accounts. The MiABLEis a Savings Accounts for Individuals with Disabilities. It was created to encourage and assist individuals and families in saving funds for the purpose of supporting individuals with disabilities to maintain health, independence and quality of life; and to provide secure funding for qualified disability expenses on behalf of designated beneficiaries with disabilities that will supplement, but not supplant, benefits provided through private insurance, the Supplemental Security Income (SSI) program, the Medicaid program, the beneficiary’s employment and other sources.
The federal ABLE Act was signed into law in December 2014. Michigan’s ABLE Account (MiABLE) was signed into law in October 2015. The state-sponsored accounts are formally known as 529 ABLE, or 529A, accounts. Authorized in 2014 by the Achieving a Better Life Experience Act (ABLE Act), the accounts are modeled loosely on the easy-to-use 529 college savings accounts.
NMEL can help with:
· the eligibility requirements for MiABLE accounts,
· how MiABLE can be used in conjunction with need-based financial aid like Medicaid and SSI,
· what MiABLE funds can be used for,
· if MiABLE may be right for your family, and
· how to open a MiABLE account.
The main benefit of the new accounts is that they allow disabled people to accumulate significant savings without jeopardizing their eligibility for need-based government help like Supplemental Security Income (SSI)or Medicaid. Disabled people, their families and friends can contribute as much as $15,000 a year without putting federal benefits at risk.
How can an ABLE account be used?
A Michigan ABLE account must be used for “qualified disability expenses” that relate to the designated beneficiary’s blindness or disability and are for the benefit of that beneficiary in maintaining or improving his or her health, independence or quality of life. Internal Revenue Code, Section 529(e)(5), lists the following as qualified disability expenses:
- education;
- housing;
- transportation;
- employment training and support;
- assistive technology and personal support services;
- health; prevention and wellness;
- financial management and administrative services;
- legal fees; expenses for oversight and monitoring;
- funeral and burial expenses;
- and any other expenses that may be identified from time to time in future guidance published in the Internal Revenue Bulletin.
Expense payments from a Michigan ABLE account are referred to as “distributions” in the federal ABLE Act and legislation.
A distribution for housing expenses from a Michigan ABLE account would be considered a resource when determining eligibility for SSI and could affect the designated beneficiary’s Medicaid benefits.
Contact us for more info:
(231) 715-1401