Special Needs Trust for Sole Benefit of Child with a Disability

Medical advances now ensure that disabled children live longer and longer, often surviving their parents. “Twenty years ago that wasn’t the case, but it is now,” says Nadine Vogel, who runs MetLife’s Division of Estate Planning for Special Kids. Indeed, the average life span of people with a developmental disability (such as mental retardation) is 66 years, triple what it was in the 1930s. The increase in life expectancy is stunning for people with Down syndrome-they live to 56 on average, two times their expected life span as recently as the 1980s. The U.S. has 650,000 adults over the age of 60 with developmental disabilities. This number is expected to double by 2003.

So what if mother need nursing home care, but doesn’t have long term care insurance, and has limited income and resources? If she doesn’t consult with an attorney who knows that there is a solution, she will likely spend her resources to pay for her care until she has just $2,000 in countable resources remaining in her name. She may sell the house and spent that money as well, all the while fretting about the poor situation she believed her child to be in (and well he may be). After her funds are nearly gone, she will become eligible for Medicaid benefits. But what of her child?

Fortunately, there is a solution that benefits both generations. Special Needs Trusts are an important exception to the transfer rules discussed above. The SSI exceptions to the transfer rules (found at 42 U.S.C. 1382b (c) (1) (C) (ii) (III)), and the Medicaid transfer rules (found at 42 U.S.C. 1396p(c)(2)(B)(iii) and Volume II/MA, MT – 04/03, 2342-3) are similar though not identical. However, for purposes of both SSI and Medicaid, the parent can transfer any or all of her assets to a SNT for the sole benefit of the child with a disability, without incurring a transfer penalty for purposes of the parent’s application for public benefits.

The result is this. The parent can become eligible for Medicaid benefits when he otherwise meets the eligibility criteria (discussed above), without having to wait until a penalty period has ended. And the child can maintain any benefits he has previously been eligible for (or for which he is now applying) while now having the additional benefit of the assets that are held in the SNT.

With many up sides there is a down side. In this case, the downside is that the SNT must include a pay-back provision such that, upon the death of the child the state Department of Community Health will be reimbursed for any Medicaid assistance it paid; there is not a requirement that SSI benefits be reimbursed. Remainder beneficiaries can be named to take any assets not needed to reimburse Medicaid.