What you should know about special needs trusts

Providing for the many needs of someone with a disability can be difficult, especially if that person receives government assistance like Medicaid or Supplemental Security Income (SSI).

One way to save money without jeopardizing those benefits is through Ohio’s STABLE account.  However, it has a maximum annual contribution limit of $15,000.

Another option is a special needs trust (SNT).  There are two potential types: First Party SNT where the assets are owned by the beneficiary with a disability and Third Party SNT, which has assets owned by someone other than the beneficiary. 

A first party trust requires any money left in the trust after the beneficiary dies be paid to Medicaid in an amount equal to the amount of the Medicaid benefit the individual received.  This payback is not required with a third party trust.

Both types of trusts have limitations for how the assets can be spent.  They can’t be used for housing or food, but they can be used for things like advocacy, cable TV, cell phones, entertainment or sporting events, experimental or elective surgery, pets and pet care, prescriptions or special therapies and equipment, respite care, and vacations.

Barry Jamieson, a certified financial planner with CMP Financial Planning in Columbus, says it’s important to find an experienced attorney to set up a trust.

“If the trust is invalid, then those assets are going to make that individual not eligible for Medicaid services and for Social Security,” says Jamieson. “I would be asking them ‘have they drafted a special needs trust that’s been approved by Medicaid?’”

He says it is possible for a parent or grandparent to set up a third party trust and not deposit money into it until their death, such as money from a life insurance policy.  Once money is deposited, there will be some taxation issues to consider, like reporting investment income if interest is earned and money is not spent.

Considered one of the most difficult decisions families need to make, it’s important to choose a trustee who has some knowledge of Medicaid and Social Security.  This could be a family member or it could be a professional trustee, such as a bank.

Some SNTs are pooled trusts that are established and administered by a nonprofit, such as the Community Fund Management Foundation (CFMF), which has several offices in Ohio.

“It’s basically the same as a private trust except the application goes through our nonprofit, and we have the trust already written so you file a request to join our trust through a joinder agreement; it has to be through an attorney,” says Brian Cook, an associate director with CFMF.

Cook says it can sometimes take a few weeks to withdraw assets from their pooled trust because CFMF reviews every request to make sure it doesn’t affect Medicaid eligibility.

He recommends also opening a STABLE account with a trust because it has almost no fees, costs very little to establish, and money can easily be withdrawn.  It can cost between $750 and $3,000 to create a special needs trust, and then there are fees once it has assets.

For more information about SNTs, you can contact Jamieson at 740-815-3969 or barry@cmpfinancial.com or CFMF at 216-736-4540 or info@cfmf.org. 

For information about STABLE accounts, go to www.stableaccount.com.