On this blog we often discuss the importance of Medicaid planning through the creation of trusts. The basic idea behind this practice is to keep a person’s eligibility for Medicaid so they can receive benefits that will help them with long-term care. Most of the time, we talk about this topic in the context of people who need this care because they are getting older, but there can be other situations where a similar concept applies.
What is a special needs trust?
A handicapped person might need some sort of care for the rest of their lives. Depending on the circumstances and their exact needs, this care may be limited or extensive, but it will almost certainly be expensive. Medicaid benefits can help pay for long-term care, but Medicaid’s eligibility requirements are very strict. It can be difficult for the handicapped person to save any money without losing their eligibility.
A special needs trust allows the person to maintain eligibility for Medicaid benefits while also having access to some assets. The trust can be set up by the person themselves or in some cases by third party, such as a charitable organization that pools resources to care for a number of people with special needs. Often, a special needs trust is set up by parents or other relatives of an adult with special needs.
The basics of trusts
A trust is a way of dividing ownership of property. The settlor of the trust appoints a trustee to oversee the assets in the trust for the benefit of the named beneficiary or beneficiaries. Because the beneficiary doesn’t actually own the assets in the trust unless or until the trustee distributes them, these assets are not necessarily counted when judging the beneficiary’s eligibility for programs such as Medicaid.
The settlor can set up a trust that goes into effect upon their death, or during their lifetime. They can pick almost anyone or any entity as beneficiary, and they can provide precise instructions for how they want the assets to be distributed. The trustee has a fiduciary responsibility to protect the assets in the trust so as to maintain value for beneficiary.
When relatives organize a special needs trust, they appoint their loved one as the beneficiary. The trustee is typically a professional individual or organization that has experience with trusts. The trustee then manages the assets in the trust, investing them as needed and distributing them to the beneficiary according to the instructions in the trust document.
Peace of mind
A lot of work goes into creating a trust, but families that create one find that they get a lot out of the process as well. For relatives who are setting up a special needs trust, one of the greatest benefits is the peace of mind that comes with knowing that they have helped take care of their loved one, and that this care can continue even after they are no longer around to care for their loved one themselves.
