A special needs trust preserves eligibility for Medicaid and Social Security, as well as other public benefits. It also provides for financial management if the disabled person lacks the capacity to handle finances such as bill paying, etc.
If the person inherits more than the current resources allowed under Social Security, the disabled beneficiary risks losing their benefits. In most instances, the court would then need to be petitioned to create a Special Needs Trust. Because the person inherited funds, Medicaid would need to be paid back for ALL benefits paid on behalf of the beneficiary. Therefore, if the Special Needs beneficiary does not use all of the funds, then they are reverted to the State of New Mexico and not other heirs.
As a lawyer with a child with special needs, there are many things that I know about my child that others cannot figure out. My child is hearing impaired but can communicate (in her own way) with me. I also know things like, she won’t take her medicine with water, she only will eat eggs scrambled. If all else fails when she is throwing a fit, then there are techniques to distract her. Finally, she has a myriad of medical needs that her substitute caregiver would need to know. This Memorandum is a place where you can complete these specifics so that the next caregiver has a head start on the transition.
The difference between the First Party (payback) Special Needs Trust and the Third Party Special Needs Trust, and the decision as to which trust the legal practitioner will draft or use, is based upon the source of property that funds. Specifically, the pay back Special Needs Trust is designed to hold property which belongs to the disabled person. For example, a medical malpractice award, personal injury or other financial legal settlement or judgment; child support (under certain circumstances; accumulated resources of an individual who becomes disabled as a result of the onset of a permanently disabling condition (for example, Parkinson’s disease, traumatic head injury, Multiple Sclerosis, etc.); and receipt of an inheritance – all of which would otherwise make an individual ineligible Medicaid. If the funds are those of the parents that they wish to leave for the special needs child, then that would be a third party Special Needs Trust.
The definition of ‘disabled’ and the statutory cite therein means the individual either has medically qualified under Social Security law for SSI (a cash benefit program for poor disabled persons without sufficient work quarters) or SSDI (social security disability, a cash benefit program for persons who have been employed and collected enough work quarters or history proximate to the onset of the permanent disability). Disabled does not mean a judicial determination of incompetence or incapacity.
Social Security Disability Income (“SSDI”) provides a monthly cash benefit for persons who have sufficient work quarters or work history and medically prove they are disabled. The Social Security definition of disabled means that the individual is unable to engage in substantial, gainful employment and under age 65 (persons age 65 and older with a work history have SSA retirement income). In addition, a derivative benefit of SSDI from a parent work history may be paid to disabled persons for whom the onset of their disability occurred before age 22. This type of benefit is paid when that parent has either died or become disabled himself or herself. The benefit, called Disabled Adult Child (DAC) benefit, paid is 50% of the parent’s social security or SSDI while the parent is living,and 75% of the parent’s benefit after the parent has died.
This is the short answer. Management of a Special Needs Trust can be divided into two categories, financial management and ‘day to day’ administrative management. Financial management is guided by state law. Most states have enacted laws which require ‘prudent investment’ and define that either by statute, judicial decision, or both. If the trust is monitored by a court, there may be restrictions established by the court. For example, your court may require deposit into FDIC insured banking institutions (and within FDIC insured levels) and court approval authorizing deposit of the trust portfolio with an investment company. Other courts may require a financial plan be submitted -in writing or by testimony- by an investment adviser establishing the financial management plan for the trust, particularly when larger sums are involved. The most important thing to do in planning is work with a qualified financial adviser and fiduciary. Administrative management is the job of the trustee to make sure that the funds are being spent according to the law and for the benefit of the disabled person.
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