A special needs trust can support an individual with disabilities without disqualifying them for programs like Supplemental Security Income (SSI) or Medicaid Long-Term Services and Supports (LTSS). There are multiple types of special needs trusts. Each one must follow specific rules to remain compliant with applicable laws and regulations. Otherwise, the trust could cause the beneficiary to be disqualified from the programs they rely upon. Assets put into a non-compliant trust may also be subject to fines, penalties, and recovery actions by Medicaid or Social Security.
If you want to create a special needs trust, you must be diligent to avoid triggering negative consequences for the beneficiary. To help out a loved one in Santa Fe, it is frequently recommended by state and federal agencies that you secure the assistance of an experienced special needs trust attorney. A knowledgeable lawyer can help you craft a trust using the right language and structure for your unique situation.
New Mexico Financial Law has over a decade of experience creating special needs trusts for families, individuals with disabilities, and benefactors living in Santa Fe. Discovering the needed strategy for your situation could be just a call or a click away. Reach out to our attorneys or contact us online to schedule a no-obligation case review.
Special needs trusts’ main purpose is to provide supplemental support for individuals with disabilities who are receiving public benefits. These trusts can be used to support an individual at any age, regardless of whether they live independently or in the direct care of a guardian.
Like other types of trusts, a special needs trust involves three main parties:
All types of special needs trusts share a few important characteristics:
Other rules will apply, depending on the type of special needs trust selected. A Santa Fe special needs trust lawyer can help you review all of your options, understand the requirements, decide on the right trust, and create one that complies with program restrictions — as well as your unique situational needs.
There are three different special needs trust structures available:
Each one is intended to address a different situation while still providing the expected Medicaid and SSI eligibility protections.
As another option, anyone wishing to support individuals with disabilities can create or contribute to ABLE accounts.
Note that your situation may call for a single trust, or it could benefit from multiple types of trusts (and/or an ABLE account). The benefits and requirements of every arrangement demand careful consideration. You can reach out to a law firm in Santa Fe that is highly familiar with special needs trust creation and litigation to help you make the right decision for your disabled loved one.
A first-party special needs trust is created using resources originally owned by the individual with disabilities. They may have owned these assets before they applied to their respective public benefits programs, or they could have acquired them after the fact.
Often, the assets are received as an inheritance or gift. Other times, the individual with disabilities may have obtained the assets as part of an injury settlement, court award, or lump sum payment for back benefits.
Regardless of their origin, these assets are placed into an irrevocable trust to remove them from the beneficiary’s countable resources. A trustee other than the beneficiary must manage them and make discretionary distributions for qualified expenses.
Importantly, after the death of the primary beneficiary, assets in a first-party trust must be used to repay the state Medicaid agency (such as New Mexico’s Medical Assistance Division) to reimburse them for the cost of covered services and supports. If any assets remain after repayment (which is very rarely the case), they could pass to contingent beneficiaries, including a charitable organization.
First-party special needs trusts have the most restrictions out of any option. Accordingly, you should make sure to refer to an experienced Santa Fe special needs trust lawyer to receive assistance with creating the trust to ensure it can comply with applicable rules and provide the expected benefits.
A third-party special needs trust can be created by a family member or any other party who has a concern for the welfare of an individual with disabilities.
These trusts are formed using resources that never belonged to the primary beneficiary. Accordingly, the trust’s assets are not subject to Medicaid recovery after the individual with disabilities passes. Instead, they can pass automatically to the remainder beneficiaries. These contingent beneficiaries can be relatives of the grantor, a charitable organization, another trust, or any other legal entity.
Third-party special needs trusts are often used as a component of estate planning. Some families make the mistake of leaving a relative with disabilities money in their will or naming them as a beneficiary on their life insurance policy. Using a third-party special needs trust avoids a situation where the disabled individual receives this money and then has to form a first-party trust — subjecting the assets to Medicaid recovery in the process.
To ensure that your plans for inheritances, beneficiaries, or benevolent gifts to another party do not hurt their ability to continue qualifying for a needs-based public benefits program, you can speak to a Santa Fe estate planning lawyer.
A pooled special needs trust must be created and managed by a charitable non-profit organization, such as The Arc of New Mexico. These organizations gather together money for multiple disabled beneficiaries, hence the name, pooled trust. They can also pool together support for a single beneficiary from multiple benefactors, including family members, organizations, grants, and other donors.
The benefactors create a dedicated account or sub-trust within the larger pooled trust for a specific individual with disabilities. Importantly, the beneficiary can be over the age of 65. The contributing funds can also come from any party, including the beneficiary.
The managing charitable organization appoints the trustee from within. Guardians, loved ones, or the beneficiary can submit a disbursement request for a qualified expense to the account trustee. Once the disbursement is approved, the pooled trust organization releases funds directly to the provider of the qualified good or service.
Once the beneficiary dies, the funds placed into the pooled trust account may revert to the state Medicaid agency, the organization itself, or a beneficiary chosen by the original asset owner(s). Funds from first-party (aka “self-settled”) accounts automatically go to the larger pool of funds to support other beneficiaries. Funds in a third-party account, however, can go to other beneficiaries, including a non-profit organization other than the pooled trust provider.
Pooled special needs trusts can be more flexible than other trusts in the sense that they have fewer limitations regarding the age of the beneficiary and the source of the funds. However, they are more limited when considering the role of the charitable organization as trustee. These organizations may introduce their own rules or requirements on top of the ones already imposed by the beneficiary’s public benefits provider.
Accordingly, you may wish to refer to a Santa Fe law firm experienced with special needs trust formation for advice on the most appropriate option for your specific situation.
One of the most critical concepts to remember about a special needs trust is that distributions must only be made for qualified expenses.
Unlike most other trusts, distributions should never be made directly to the beneficiary. They should also never be used to pay for services, medications, supplies, or resources that are supposed to be covered by the beneficiary’s public benefits programs.
Examples of expenses covered by SSI and Medicaid that cannot be paid for using a special needs trust include:
Examples of expenses that a special needs trust can pay for include:
The role of the trust in covering these expenses is why they were once commonly referred to as a “supplemental needs trust.”
Understanding which distributions are acceptable is one of the most important trustee responsibilities. The trustee must also keep within a budget to maintain the fund and support the beneficiary for the remainder of their expected lifespan.
Accordingly, the trustee should be an individual who is financially responsible and capable of understanding the nuances involved in keeping the trust compliant with the applicable state and federal rules. Any time they are not sure, they can consult with a Santa Fe special needs trust lawyer for guidance on making disbursements, maintaining trust assets in accordance with its long-term plan, and other related matters.
As you can see, many special needs trust benefits can be obtained with the right plan, but there can be just as many limitations to watch out for. You can combine some of the strategies covered above to produce the best outcome for yourself or a loved one who has a disability.
New Mexico Financial Law can provide you with a Santa Fe trust attorney who can listen to your specific requirements and come up with a strategy for accomplishing your goals. Special needs trusts can be combined with other estate planning approaches, as well, including the creation of a testamentary trust, a living trust, or the use of a life insurance policy to fund a pooled account or third-party trust on behalf of an individual living with a disability. Get advice tailored to your unique situation, and uncover the best special needs trust solution for you during a confidential, no-obligation consultation. Book your case review with an experienced special needs trust lawyer in Santa Fe today when you call our law firm at (505) 503-1637 or contact us online.
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