What Is A Special Needs Trust?

Very basically, a special needs trust is exactly what it sounds like. A trust that provides for someone with special needs.

The idea is simple enough to understand, you put money into a trust and that money is used to provide for a person with special needs.

So why are they so expensive then? Seems easy enough.

What murkies the water when it comes to SNTs(special needs trusts) is the government.

I’ve talked about medicaid recovery here, and you should read up on it.

Special needs people are usually on SSDI, which is a government program funded by our taxes that provides for people with special needs.

Some of our tax dollars are allocated to programs like SSDI and Medicaid to provide free services to poor people who need healthcare and for disabled people who don’t have money to support themselves.

People get on these programs by being poor. Government aid programs evaluate your “available income” and “countable assets” to make a determination on whether you qualify for the programs or not.

If you have too much money, or too many benefits that the government considers “available income” or “countable assets,” then you don’t qualify for benefits. The government can either cut you off from existing benefits, or not let you on to begin with.

When it comes to special needs folks, they’re kind of walking a tightrope, because they cannot ever receive “too much” money or else they will be disqualified from SSDI.

If a disabled person receives a large inheritance for example, the government may take them off benefits. Or, if a trust gives them too much power or access to money, the government will cut them off too.

So the purpose of an SNT trust is to provide resources for the special needs person while also allowing them to keep their benefits.

For this reason, an SNT needs to give the special needs person virtually zero control over the assets, and the assets may not be used for outright cash distributions.

There is a labyrinth of SSA and Medicaid regulations that outline what is “countable” for disqualification and what is “available income.” So it’s important that the trust does not give the person too much money and limits the distributions to things that SSA won’t consider income.

Giving cash outright to a special needs person will be considered countable income. If you have a trust that gives a special needs person $10,000 a month, they will be disqualified from SSDI and lose their benefits either temporarily or permanently.

Furthermore, people on SSDI or Medicaid have a LEGAL DUTY to report newfound income or assets or changes in income. So, even though a lot of people fail to report disqualifying events, that is not legally advisable. In dealing with law, you have to do things by the book.

Theoretical underpinnings

A lot of middle class people looking to keep large sums of money and not lose their loved ones government benefits usually get pissed off at the government when they find out how many hoops you have to jump through to keep money and keep benefits.

But think about it from the governments perspective. At it’s core it’s very simple and practical:

These programs are paid by taxpayers. If a person has money to provide for themselves (like an inheritance), then the government’s position is why should they be allowed to use society’s hard earned tax dollars for support? Why should society continue supporting a disabled person who just got a $200,000 inheritence from dad?

The government will disqualify them from benefits and say reapply for SSDI when you’re broke again.

Loved ones often balk at this because people start to feel entitled to these programs. And, I’m not making any political commentary here I’m just asserting the reality. I think it’s good society has a safety net for people in need. Since Roman times government welfare programs have been critical to maintaining orderly society.

But on the flip side of that coin, if we allow people who have the means to support themselves to go on welfare then we are defeating the purpose of the program and taking away resources from people who DON’T have the means of supporting themselves.

So before you get mad at the government, try to see it from their perspective and through the lens of making sure our tax dollars go to the right people who actually need the help.

Taxes are annoying, every week they take damn near half of your paycheck. Some people disagree with welfare outright. Others may view it as a “tax” we pay to avoid a massive public health crisis, where, if we didn’t pay for poor people’s care they’d be dying homeless on the streets which would costs equal amounts of tax dollars to abate the spread of mass disease, urban blight, and the collection and the collection and disposal of all the dead bodies lining the streets.

With unabated poverty our society would most likely look dystopian with poor, hungry, sick people flooding the streets.

Anyway, whether or not you agree with the welfare system, many people agree that it’s infuriating to learn that half of your hard earned paycheck is going to people who don’t qualify for benefits and actually have the means to support themselves.

So what’s it all mean?

Now you’ve seen the theory behind welfare, and why some people disagree with it. I’ve also explained why it would be beneficial to pay it, even if you disagree with it.

With that in mind, the government enacted laws that make it difficult for poor people to get a lot of money and keep their benefits. The government keeps a watchful eye on your assets, and you have a duty to report any changes in income or assets. For those reasons… it’s difficult.

What an SNT trust does is, it allocates money in a way that doesn’t give the special needs person too much control and only provides for certain things like education or healthcare that SSDI or Medicaid won’t pay for.

If it’s money from a thrid party (friend or family), the trust must give full control and discretion to the third party controlling it.

If it’s self-settled (meaning if a special needs person uses their own money), they must also give up full control and the money needs to be given to supplement SSDI, not replace it. In a self-settled trust, the final beneficiary is the state. The trust must contain a provision that says when the person dies, medicaid will get paid back for any expenses incurred.

Medicaid keeps tabs on your expenses.

Do I need one?

You may be thinking: I have a son or nephew or daughter who has special needs and I want to provide for them to supplement SSDI and keep them on benefits. Why do I need a special needs trust if I can just pay outright for the supplements to SSDI?

That’s a good point, you can do that, but you need to keep in mind things that will disqualify them from SSDI. An SNT is possibly a safer way to provide for a person in a way that won’t lose their benefits becau everything is outlined in a trust.

Another reason to have one is to put money into incase you die. If you die, you can have money go into an SNT to ensure that your loved one is supplemented.

The bottom line

When it comes to government programs, you can’t have your cake and eat it too.

There isn’t a way to allow a special needs person to be legally well off and also legally poor enough to stay on SSDI.

So when people do SSDIs or Medicaid Qualifying Trusts, there are certain sacrifices you have to make. Essentially, giving up control of your money so that you’re still “legally” poor.