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Also known as Supplemental Needs Trust

Disabled beneficiary

Based on data from the 2010 United States census, approximately 56.7 million people (19% of the U.S. population) suffer from a disability.  In Texas, approximately 16.7% of the population between the ages of 21 and 64 receives Supplemental Security Income (SSI) benefits from the Social Security Administration. If you are naming someone with a disability (young or elderly) as one of your beneficiaries, it is extremely important that you do not jeopardize their government benefits. Many government benefits have strict guidelines as to how many assets, or how much income, a disabled person may receive and not lose their benefits.

Public benefits

There are two major categories of public benefits: (1) those that are non-means tested, and (2) those benefits that are means tested. 

Non-means tested benefits:  these benefits are available regardless of the amount of your income or value of your assets.  There are other criteria that you must meet to qualify, but they are not related to your financial means. Two of the currently available non-means tested programs include Social Security Disability Insurance (SSDI) and Medicare.

Means tested benefits: to be eligible for these benefits you must demonstrate that your income and the value of your assets do not exceed certain limits. Three of the currently available means tested programs include Supplemental Security Income (SSI), Texas Medicaid, and Veterans Administration Benefits. 

It is important to understand that even though a beneficiary might not currently receive a means tested benefit, he or she may be eligible for such benefits in the futureBecause of that, your estate plan should be flexible to accommodate the changing needs of the beneficiary.  

Public benefits are designed to provide only basic health care, food, and shelter. As a result, these benefits provide only a meager existence for the recipients. Often, individuals with disabilities have many additional needs not covered by public benefits. You may also want to provide your beneficiary with more than just their “needs”.  You may want to provide them with enriching activities and services for which public benefits are not designed.  

Poor solution

Sometimes loved ones believe the only solution is to disinherit the disabled person and give their inheritance to another family member (such as a brother of sister) with the understanding that the money will be used to provide for the disabled individual.  There are risks you may face if you decide to proceed in this way.

  • Giving the assets to someone else gives them legal ownership of those assets.  If later this person is sued, there is nothing to protect those assets from a judgment.
  • What if the individual to whom you left assets die before your loved one?  Since they have legal ownership of those assets, those assets can pass to their heirs who may not have made a commitment to care for your loved one.
  • After a period of time, the individual you named may face a financial crisis and decide their only solution is to use those assets for their own benefit. 
  • If the disabled beneficiary is an older person, the individual to whom you left the assets may get tired of dealing with the beneficiary if they are too needy or simply grumpy.
  • Even if you trust the individual to whom you entrusted with the assets, they may not provide for the disabled person to the extent you had hoped.

Better solution

As you can see the answer is NOT to simply disinherit them.  A Special Needs Trust (SNT) can be established to hold the assets for the disabled beneficiary. 

A Special Needs Trust (SNT) is sometimes called a Supplemental Needs Trust or a Management Trust.  But the purpose is this: to protect your intended beneficiary’s public benefits and still provide for the supplemental needs and enrichment that will enhance his/her life without losing their public benefits. 

Services or items the SNT can provide

The list below identifies just some of the supplemental needs and enrichment the SNT could provide for the intended beneficiary.  It is certainly not an exhaustive list.

  • recreation and related equipment such as bicycles adapted for their disability
  • transportation (including adapted vehicle conversion)
  • dental care not otherwise provided by public benefits
  • hair and nail care
  • telephone, internet, cable services
  • supplemental nursing care
  • mobility aids such as electric wheel chairs
  • private school tuition
  • respite care
  • eyeglasses
  • entertainment
  • radios
  • training and education programs
  • reading and educational materials
  • supplemental dietary needs
  • cultural experiences
  • private case management
  • expenses associated with bringing relatives or friends to visit beneficiary
  • travel

Overview of Special Needs Trusts

There are two categories of SNTs. 

  • Self-settled SNT
  • Third Party Settled SNT

Self-settled SNT

Under the self-settled SNT there are two type of SNTs

  • Special Needs Trust
  • Pooled Special Needs Trust

The Special Needs Trust indicated by (a) above is a trust created and funded for the sole benefit of an individual with a disability who is under the age of 65.  It can be established by the individual or the individual’s family or the court.  It is funded with the individual’s assets.  One “catch” is the trust document must include a provision that the state’s Medicaid agency will receive the balance remaining in the trust at the time of the individual’s death.  Medicaid is allowed to receive a pay back, up to, the amount paid by the state paid under the Medicaid program for services to the disabled person. 

The Pooled Special Needs Trust indicated by (b) above is a trust created and managed by a nonprofit organization such as the Association for Retarded Citizens (Arc of Texas).  In this type of trust individuals with the disabilities pool their assets together and it is managed and invested by the nonprofit organization.  A separate subaccount is maintained for each individual.  Each subaccount is created for the sole benefit of an individual with a disability by the individual’s parent, family member, legal guardian, the court or the individual.  In Texas, the requirements stipulate that the trust must be funded before the individual reaches the age of 65.  Just as with the SNT discussed above, upon the death of the beneficiary, Medicaid will recover the amount they paid out for the beneficiary.  If there is a remainder in the account after Medicaid is paid, the trust can pay the remainder to other designated beneficiaries. 

Third Party Settled SNT
This type of SNT is created and funded with the assets of a person, other than the disabled beneficiary.  As part of their estate planning, parents, grandparents or other family and friends may create and fund these third-party trusts for the benefit of the disabled individual.  Utilizing this type of trust, preserves the disabled beneficiary’s public benefits while still supplementing those benefits.  This type of trust can last the entire lifetime of the beneficiary.  At the beneficiary’s death, the remaining property can pass as designated in the will or trust agreement.