Because Hoosiers who have serious injuries and illnesses are often unable to work, many qualify for public assistance. To receive funds through means-tested programs, such as Supplemental Security Income or Medicaid, individuals must have limited financial resources.
Helping a friend or relative who has a disability may be one of your primary estate planning goals. You must be careful when gifting cash or other assets directly to a person who receives public benefits, though, as you do not want to render him or her ineligible for government help.
A special needs trust holds funds for your loved one’s benefit
When you establish a special needs trust, you do not transfer money to your loved one. Instead, the trust holds funds your friend or relative may use to improve the quality of his or her life.
Because funds in the trust do not qualify as income under means-tested program rules, your loved one continues to receive financial assistance from the government.
A special needs trust pays supplemental expenses
To remain eligible for public assistance, your friend or relative may only use disbursements from the special needs trust to pay for expenses public funds do not traditionally cover. While housing expenses, utility costs, and grocery bills are probably off limits, supplemental expenses are okay.
Among others, supplemental expenses may include medical copays, travel, vocational training, restaurant meals. Nevertheless, the trustee who manages the special needs trust should scrutinize proposed disbursement to ensure they are supplemental and do not run afoul of means-tested program restrictions.