Special Needs Planning often involves protecting a loved ones Medicaid and SSDI benefits.  Special Needs Trusts (or "Supplemental Needs Trusts") are trust instruments designed to preserve Medicaid and other public benefits when one of four common events occur:

• A disabled child (who is receiving public benefits) receives an inheritance

• A disabled child (who is receiving public benefits) receives proceeds from a personal injury settlement or suit

• A disabled adult in a skilled nursing facility (who is receiving public benefits) receives an inheritance

• A disabled adult in a skilled nursing facility (who is receiving public benefits) receives proceeds from a personal injury settlement or suit

In all of the above situations, the receipt of these proceeds may mean the discontinuation of those benefits unless proper planning is implemented. 

Inheritance example: Mom is in a Nursing Home. Her nursing home expense is $5,000 per month. Her Social Security of $1,000 per month goes toward this cost of care. The balance of $4,000 per month is paid by Medicaid. Her sister leaves her an inheritance of $100,000 in her Last Will and Testament. The direct inheritance of this amount will effectively stop public benefits until this amount is gone. This means that the $100,000 must pay for the $4,000 per month medical expenses that public benefits were once paying for. In approximately 25 months, this inheritance will be gone. Instead, the Sister should have established a Testamentary Special Needs Trust for her sister in the Nursing Home. Her benefits would have continued, and that inheritance would be there for those things Medicaid does not pay for. Such a trust must be carefully drafted so as not to run afoul of Federal and State laws.

Inheritance example: Joseph is an 8 year old permanently disabled child who is receiving SSDI and Medicaid benefits. Joseph's medication costs $1,200 per month and his therapy $800 per month. Joseph's mother's income and assets cannot afford to pay for these expenses and as such the family relies upon these public benefits for Joseph's well-being. Joseph's Grandmother wishes to leave Joseph an inheritance in her Last Will and Testament, but fears that this will ruin the receipt of his benefits. Without any proper planning she is right. If she leaves an inheritance of a $100,000, Joseph's benefits will be discontinued and the $100,000 must be spent on these expenses. This means that in approximately 4 years this inheritance will be gone, when Joseph is only 12 years old. At that time, Joseph will again be eligible for the public benefits, but any benefits from the inheritance are gone. Again, a Testamentary Special Needs Trust should have been established in order to preserve such benefits.  Such a trust must be carefully drafted so as not to run afoul of Federal and State laws.

Personal Injury example: Elizabeth is a 12 year old permanently disabled child. Her disability is the result of an automobile accident. Because of her disability, Elizabeth must take certain medication and undergo therapy for the rest of her life. These medical expenses cost approximately $2,000 per month, and will only rise in the future. The family relies on SSDI and Medicaid public benefits to pay for these medical expenses. As a further result of this accident, a personal injury suit was initiated. A settlement was reached for $200,000 (after legal fees and costs). Because of her disability, a guardianship must be established to receive and manage these funds. Unfortunately, this amount must now be spent on those medical costs until those funds are fully depleted. This will take approximately 8 years, when Elizabeth is 20 years old. However, at that time she will no longer have the benefit of the $200,000. Instead, the Personal Injury Attorney should have contacted an attorney well versed in establishing a Court-Ordered Special Needs Trust.  Such a trust would have continued the public benefits, and preserved the personal injury proceeds in order to pay for those things not covered by the public benefits.  Such a trust must be carefully drafted so as not to run afoul of Federal and State laws.

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