Some complexities can be difficult to understand when learning about the intricacies of special needs trusts and estate planning for those with special needs in Pennsylvania. Whether you’re a caregiver, a family member, or an individual with special needs, you will want to know the potential advantages of these trusts.
When you’re ready to navigate through their structure, operation, and legal considerations within the context of Pennsylvania law, you need help from expert special needs trusts attorneys in PA at May Herr & Grosh. We have been helping people navigate the legal complexities of these trusts for many years, and we have the knowledge to help you with your unique situation. Read on to get some more information about these trusts and learn more about how they work.
What Is a Special Needs Trust?
A special needs trust (SNT), sometimes called a ‘supplemental needs trust,’ is a legal tool designed to benefit an individual with a disability. The trust holds assets for the person with special needs, providing them with resources while preserving their eligibility for public benefits like Medicaid and Supplemental Security Income (SSI).
When correctly drafted and managed, SNTs serve as a protective measure, preventing individuals with disabilities from being disqualified for benefits such as Medical Assistance (MA), Supplemental Security Income (SSI), and Mental Health/Intellectual Disability (MH/ID). Current legislation allows the creation of SNTs to circumvent disqualification for these public benefits entirely.
In the case of Third Party Funded SNTs, public authorities cannot access the funds as long as the trust signifies the settlor’s intention that the trust’s corpus should not be considered a “resource” for public benefits. Federal law explicitly allows establishing and preserving lifetime trusts for disabled MA recipients using their own funds, known as Self-Funded SNTs. Additionally, the Pennsylvania Rules of Civil Procedure specifically endorse the usage of SNTs in the settlement of civil litigation.
Are there different types of SNTs?
There are three types of SNTs, each defined by its funding source:
- A Third Party Funded SNT is funded by an entity other than the beneficiary.
- A Self-Funded SNT is funded with the beneficiary’s own assets.
- A Pooled SNT involves individual accounts contributing to a common fund managed by a non-profit fiduciary, similar to a mutual fund program.
How Does a Special Needs Trust Work?
The workings of a special needs trust can be somewhat complex, but here is a simplified explanation. A family member or loved one establishes the trust, often a parent or guardian, and funds it with assets that can be used for the beneficiary’s supplemental needs.
The assets in the trust are not directly accessible by the beneficiary. Instead, a trustee is appointed to manage the trust and make disbursements for the beneficiary’s needs beyond food and shelter, such as education, therapy, recreational activities, and more.
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Legalities of Setting Up a Special Needs Trust in Pennsylvania
In Pennsylvania, like in other states, there are specific legal requirements to set up a special needs trust for an individual:
- Beneficiary Requirement: The beneficiary must be under age 65 and have a disability as defined by the Social Security Administration. Once the trust is established, property or assets cannot be added to the trust after the recipient’s 65th birthday.
- Trustee Appointment: A trustee must be appointed to manage the trust. This person can be an individual, such as a family member or professional, or a corporate trustee, like a bank.
- ‘Sole Benefit’ Rule: The trust must be established for the ‘sole benefit’ of the person with special needs. This rule means that the funds in the trust cannot be used to support other individuals.
- Medicaid Payback Provision: If assets remain in the trust upon the beneficiary’s death, the state Medicaid program must be reimbursed before any funds can be distributed to heirs.
Can Anyone Establish a Special Needs Trust?
While anyone can contribute to a special needs trust, establishing one is often initiated by a parent or guardian of the individual with special needs. However, in some cases, a court may also establish an SNT. It’s important to note that establishing an SNT involves legal procedures and requirements, making it advisable to seek assistance from an attorney experienced in special needs planning. They can ensure the trust is set up correctly and complies with all federal and state laws.
Understanding Expenditures from Special Needs Trusts
Distributions from a Special Needs Trust (SNT) are strictly designated to aid the trust’s beneficiary. Typically, SNTs supplement gaps in public assistance benefits by providing funds for specific needs or activities. Here’s a non-exhaustive list of expenses that an SNT can cover:
- Medical equipment such as wheelchairs, respiratory devices, hearing aids, and more
- Educational necessities, including tuition fees, textbooks, school supplies, and tutoring services
- Communication costs like phone bills, internet access, and computer equipment
- Medical appointments, including physician visits and eye or dental check-ups
- Entertainment resources like televisions and other similar electronic devices
- Household items and furniture
- Home repair or renovation equipment
- Health and life insurance plans
- Travel and vacation expenses, including airfare and hotel accommodation
- Clothing
It’s crucial to note that while many of the things the funds can be used for are necessities, using SNT assets to purchase certain items, like a house or a car, can lead to issues. Doing so could significantly decrease Supplemental Security Income (SSI) benefits and possibly affect other benefits. If over 15% of SNT funds are used to buy a house, it might impact your medical benefits. Moreover, a disabled individual can only use their SNT to buy one vehicle, and purchasing a luxury vehicle may require justification from a Pennsylvania court or Medicaid agency. Mismanagement of these expenses could potentially lead to losing your medical assistance benefits.
A well-structured special needs trust can provide great financial security and improve the quality of life for a person with disabilities without jeopardizing their access to essential government benefits. Working with a knowledgeable attorney who can navigate the intricate rules of administering an SNT is highly recommended.
Get the Expert Guidance You Need to Navigate Setting Up a Special Needs Trust
Special needs trusts are powerful tools for families looking to secure the future of their loved ones with disabilities. You can navigate the process smoothly and effectively in Pennsylvania with proper understanding and guidance. When you need help with estate planning for special needs trusts, contact us to get started.
