New Mexico Special Needs Trust Lawyer

A special needs trust can be set up on behalf of anyone with limited financial means who is blind or has another type of limiting disability.

When determining needs-based eligibility for programs like Supplemental Security Income (SSI) or Medicaid, money deposited into a New Mexico special needs trust does not count towards the beneficiary’s resource calculation. The trust can pay for services provided to disabled individuals with a limited impact (or no impact) on the amount of benefits they are eligible to receive.

There are also other types of special needs trusts that can be created by the immediate family or primary caretakers of the beneficiary. These have slightly different rules but similarly limit their impact on the beneficiary’s ability to qualify for benefits.

Setting up a special needs trust (also called a “supplemental needs trust” in New Mexico) can be advisable for anyone who wants to support an individual who depends on needs-based benefits to survive. Speak to a New Mexico special needs trust lawyer to learn more about how you can provide vital financial support for loved ones who need it most.

Call 505-503-1637 or contact us online to schedule a no-obligation appointment with a New Mexico special needs trust attorney today.

How Can a New Mexico Special Needs Trust Attorney Help Me and My Loved One With a Disability?

When you have someone in your life — be they a family member, friend, or even a distant acquaintance — who has a disability, it can be difficult to support them in the way you’d like without affecting their other means of living.

Programs like Supplemental Security Income and Medicaid have strict eligibility requirements. Individuals who qualify for the program are expected to have minimal resources or income.

Providing them with a cash gift or paying for services like schooling can end up disqualifying them — unless the donor follows proper procedure and pays these benefits through a qualifying trust arrangement.

For anyone who intends to support a loved one with disabilities, understanding the program qualifications and the rules governing a special needs trust are both essential. New Mexico Financial & Family Law can assist you by helping create a special needs trust in New Mexico with your loved ones’ program requirements in mind.

Reach out to our New Mexico special needs trust attorneys when you have the means to support someone with a disability but want them to still qualify for the benefits they rely on to survive.

You can also work with a New Mexico special needs trust lawyer when you are caring for an individual with a disability who receives a settlement. By creating a qualifying self-settling special needs trust, you can deposit income and other assets into the trust to work within the rules that determine eligibility.

Our special needs trust lawyers in New Mexico can help you answer critical questions, like:

• How much to fund the trust
• Who to designate as your trustee
• Guidelines (or a standard budget) for distributions
• Whether to use a payback trust or a pooled trust, if the trust is self-settling
• Who to select as a compliant final beneficiary after the individual with disabilities passes on
• How to maintain the trust, including income generation, maintenance costs, and other financial considerations

Contact a New Mexico special needs trust lawyer to learn more and get started on planning for your special needs trust today.

How Does a Special Needs Trust Work in New Mexico?

A special needs trust is always created as a means of supporting an individual with disabilities without contributing directly to their calculable resources. One can think of these types of trusts as a legal loophole.

They were created by changes to Social Security laws to accommodate individuals who felt frustrated at their inability to help out loved ones without hurting their eligibility for public benefits.

A trust is created when a grantor transfers some of their assets into the trust’s ownership. The grantor appoints a trustee and names a disabled individual as the primary beneficiary.

The grantor may also name successor beneficiaries who receive the remainder of the trust balance when the disabled individual dies.

Special needs trusts should be irrevocable. An irrevocable trust cannot be modified by the grantor once it is created, and the grantor does not have permission to access the contents of the trust directly.

This status means that the property placed into the trust permanently leaves the grantor’s ownership, so the grantor should carefully consider what assets they want to deposit.

The trust is allowed to earn income through its assets, such as when bonds placed in the trust mature or when a stock pays out dividends.

An Irrevocable Special Needs Trust Does Not Count as a Resource for Benefits Eligibility Calculation Purposes

The Social Security Administration (SSA) does not count assets placed into an irrevocable trust as a resource when calculating eligibility for programs like Supplemental Security Income. Instead, only distributions made to the individual — or for services provided on the individual’s behalf — count as a resource.

How Does the Disabled Beneficiary Receive Money From Their Special Needs Trust?

The trust can be set up any way the grantor wants. Typically, there will be scheduled payments to the beneficiary and to the providers of services like medical transport or internet service.

The beneficiary may also be able to receive extra payments from the trust for certain incidental necessities.

Any distributions made directly to the beneficiary will cause an equivalent reduction to the beneficiary’s SSI benefits.

Payment made from the trust in relation to necessary food and shelter provided to the disabled individual will also cause a reduction in SSI benefits, up to a maximum of $334.33.

Any payments made to other service providers not in relation to food or shelter do not reduce the disabled individual’s SSI benefits. Examples of qualifying expenses can include cell phone bills, educational expenses, a computer, transportation, and even some forms of entertainment.

These rules reflect how a special needs trust is intended to only cover expenses that are not covered by SSI, Medicaid, or other needs-based benefit programs.

Main Types of New Mexico Special Needs Trusts

There are three main types of special needs trusts. These can be divided into two main categories:

• Third-party special needs trusts are created and funded by someone who is not the direct caretaker of the individual with disabilities.
• Self-settled trusts are created by someone who is a direct caretaker of an individual with disabilities, such as a parent, grandparent, designated guardian, or court-appointed representative payee.

Third-Party Special Needs Trusts

These types of trusts can often take the form of a contribution from a generous and concerned benefactor. They may also be created by an individual who passes on and wants to leave funds to a disabled relative or friend.

Since the assets are inherited by the trust, instead of the individual with disabilities, they are also treated separately from the individual’s resources.

Because the grantor’s support is voluntary, and their contributions to the trust do not remove resources that would otherwise go to the household, a third-party trust is treated as entirely separate from the beneficiary’s household resources.

Upon the death of the disabled beneficiary, the remainder of the balance of the third-party special needs trust can be distributed to any other beneficiary, including grandchildren, a charity, or another trust.

Self-Settled Special Needs Trusts

A self-settled trust is one where the grantor is also the primary beneficiary.

In the case of a special needs trust, a self-settled trust is required to separate assets that would otherwise belong to the individual with disabilities, or that would otherwise be considered as a household resource.

Put another way: self-settled special needs trusts are funded with money and assets that would normally go directly to the disabled beneficiary.

There are two primary types of self-settled special needs trusts in New Mexico:

• “Payback” (d)(4)(A) trust — These trusts must list a disabled beneficiary who is younger than 65 years old. They can typically only contain funds obtained from a court judgment or legal settlement. Upon the death of the beneficiary, all remaining funds will be disbursed to the state of New Mexico up to the cumulative value of public benefits provided to the beneficiary.
• “Pooled” (d)(4)(C) trust — These trusts must be created by a qualifying 501(c)(3) organization, which will act as trustee and manager of the trust. Multiple contributors can create a sub-account within the trust, funding them with their own assets. The sub-accounts can also be funded with assets owned by the beneficiary. Typical resources that go into this type of trust include Social Security Administration back payments, annuities from other trusts, pensions, gifts, court settlements, and excess earnings.

How Are Taxes Paid on Special Needs Trusts?

For third-party special needs trusts, all income generated from trust assets counts as trust income and is taxed using the IRS’s separate trust income schedule. Payments made to the beneficiary will reduce this income, so the trustee should take care to balance distributions to minimize the amount of trust value lost to taxes.

In addition, any distributions made from a third-party special needs trust to the beneficiary will be taxed as the beneficiary’s ordinary income.

First-party self-settled trusts completely pass through all income earned to the beneficiary for tax calculation purposes, regardless of whether the income was distributed or remained in the trust.

Note that the proceeds of a personal injury settlement will not be taxed. Instead, only income generated from assets purchased using that settlement (e.g., stock, bonds) will be counted toward taxes.

How Might a Special Needs Trust Affect Medicaid Eligibility in New Mexico?

Anyone who qualifies for Supplemental Security Income is automatically enrolled in Medicaid in New Mexico. Because of this policy, a special needs trust can also allow a disabled individual to potentially qualify for Medicaid benefits.

However, the rules for a Medicaid qualifying trust are different in that there are stricter payout limits. A Medicaid-compliant special needs trust should honor the personal needs allowance (PNA) amount and only cover qualifying medical and living expenses for the beneficiary.

Speak to a New Mexico special needs trust lawyer to learn more about adjusting your trust formation strategy if your loved one with disabilities needs both SSI and Medicaid to support themself.

Choosing a Trustee for Your Special Needs Trust

Technically, a trustee of a special needs trust can be anybody but the primary beneficiary. The grantor could name themself as trustee, for example, or assign the role to the parent/guardian of the individual with disabilities.

However, since special needs trusts must follow strict rules, it is best to select a trustee who is capable of managing the trust and complying with the rules for distributions to the beneficiary. In addition, the trustee must be willing and able to arrange direct payment for services using trust funds.

Setting up these payments can be a complicated and burdensome responsibility for someone who is already providing a loved one with care around the clock.

Because of the large responsibility required of the trustee of a special needs trust, it makes sense for the grantor to designate the position to a bank, attorney, or pooled trust provider. These individuals can use their professional knowledge and staffed teams to ensure that the trust is well-managed and that all distributions are handled in a compliant way.

Remember that a professional services provider will charge money when acting as a trustee, so account for their administrative costs and professional fees when determining a trust’s needed funding level.

New Mexico Special Needs Trust Law Firm

New Mexico Financial & Family Law has helped individuals across the state manage their finances, prepare for the future, and provide support to the people they care about most.

We know that a lot is on the line when you are structuring a trust intended to support a disabled individual for the rest of their lifetime. Our promise is to provide you with seasoned guidance and decades of collective knowledge so you can feel confident about what the future will hold for your loved ones. Reach out to one of our skilled New Mexico trust attorneys.

Find out more about how to create a special needs trust in New Mexico and the best way to configure it for the sake of your loved one when you call 505-503-1637 or contact us online to schedule a no-risk consultation.