There are a number of events that cause people to recognize the need for estate planning, but none as powerful as becoming a parent for the first time. As a parent, you want to ensure that your child is financially secure if something happens to you. If you have a child with special needs, the importance of estate planning is increased dramatically. One of the most common tools used by parents when creating a plan for their child with special needs is a Special Needs Trust. Before you decide if a Special Needs Trust is right for your estate plan, it helps to learn what you can, and cannot purchase using the trust assets. To help you plan for your child’s future, we will outline generally what can be purchased with a Special Needs Trust.
The Importance of Special Needs Planning
Incorporating a special needs planning component into your overall estate plan is importance because traditional estate planning strategies don’t work well with a special needs beneficiary. Specially, gifting assets directly to your child, either outright while you are alive or in your Last Will and Testament at the time of your death, often does more harm than good. The reason for this is that your child will likely depend on the assistance provided by Medi-Cal, Supplemental Security Income (SSI), and other government programs for his or her life. As a legal adult, eligibility for those programs will be determined, in part, on the amount of your child’s income and the value of his/her assets — and the asset limit is typically just $2,000 in countable resources. Your direct gifts, therefore, will likely increase the value of your child’s assets and cause your child to lose eligibility for assistance. Knowing that, parents often choose to incorporate a Special Needs Trust into their estate plan.
What Is a Special Needs Trust?
A special needs trust, also referred to as a “supplemental” needs trust, or “SNT,” is a specialized irrevocable living trust that allows you to continue to provide for your child without jeopardizing his/her eligibility for assistance. Assets held in a SNT are used to “supplemental” the care and maintenance provided by assistance programs. For a trust to be recognized as a SNT by SSI, Medicaid, or other assistance programs, very specific language must be used and the trust must be drafted properly, which is one of the many reasons it is in your best interest to have a special needs planning lawyer assist you. Once created, you can transfer assets into the trust to be used to supplement the care provided to your child by programs such as SSI and Medicaid. In addition, other family members can contribute to the trust while they are alive or in their own estate plan, allowing the trust to continue to provide for your child for many years to come.
Are There Limits to What Can Be Purchased Using a Special Needs Trust?
The Trustee of a SNT must be extremely careful with how the assets held by the trust are used in order to ensure continued eligibility for Medicaid, SSI, and other assistance programs. Funds in a special needs trust can be used to purchase things that are considered exempt for Medicaid/SSI eligibility purposes or for “supplemental” items not provided by assistance programs, such as a vacation. Examples of exempt assets that are not counted by Medicaid or SSI include:
- A primary residence; although, there may be an equity limit
- One motor vehicle
- Home furnishings and personal effects.
- Property essential for self-support
- Assets used toward an occupational goal
- Burial and life insurance policies
There are certain things you definitely cannot purchase using the funds held in a Special Needs trust or you risk the loss of benefits on the part of the beneficiary. Examples of things you cannot pay for using assets held in a SNT include:
- Cash given directly to the beneficiary for any purpose
- Food or groceries
- Restaurant meals (except if given as an occasional gift)
- Rent or mortgage payments
- Property taxes
- Homeowners or condo association dues
- Homeowners insurance if the insurance is a mortgage requirement
- Utilities such as electricity, gas, and water
- Utilities hookup or connection charges
Please download our FREE estate planning checklist. If you have additional questions or concerns about what can be purchased with assets held in a Special Needs Trust, contact us at the Northern California Center for Estate Planning & Elder Law by calling (916)-437-3500 or by filling out our online contact form.