What Is a Special Needs Trust?
A special needs trust, disability trust, or supplemental needs trust, is a legal arrangement and fiduciary relationship that allows a physically or mentally disabled or chronically ill person to receive income without reducing their eligibility for the public assistance disability benefits provided by Social Security , Supplemental Security Income, Medicare, or Medicaid. In a fiduciary relationship, a person or entity acts on behalf of another person or people to manage assets.
A special needs trust is a popular strategy for those who want to help someone in need without taking the risk that the person will lose their eligibility for programs that require their income or assets to remain below a certain limit.
How a Special Needs Trust Works
A special needs trust covers the percentage of a person’s financial needs that are not covered by public assistance payments. The assets held in the trust do not count for the purposes of qualifying for public assistance, as long as they are not used for certain food or shelter expenditures. Proceeds from this type of trust are commonly used for medical expenses, payments for caretakers, transportation costs, and other permitted expenses.
The party who creates the trust will designate a trustee who will have control over the trust. This trustee will also oversee its management and the disbursement of funds. Assets originally belonging to the disabled individual that get placed into the trust may be subject to Medicaid’s repayment rules, but assets provided by third parties such as parents are not.1 This type of trust is sometimes also called a “supplemental needs trust.” Special needs trusts are irrevocable neither creditors nor the winner of a lawsuit can access funds designated for the beneficiary.1
Source: investopedia.com
Setting up a Special Needs Trust Massachusetts or elsewhere in the US
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Lifetime Security for Your Disabled Child
Establishing a well-funded Special Needs Trust (SNT) for a child with a disability in Massachusetts or anywhere in the country is an important part of providing them with a lifetime of safety, security, and quality of life after you are gone. Money, managed well, means options, choices, and a better life.
Special Needs Trust Administration – How Can Special Needs Trust Funds Be Used?
Many trustees mistakenly believe that a Special Needs Trust can only be used to pay for medical goods and services or other items that are directly related to the beneficiary’s disability, however, if an SNT is well-drafted, that is not the case.
Special Needs Trusts can be used to pay for just about anything that benefits the beneficiary, such as: home and vehicle maintenance, vacations, computers, and other electronic equipment, education expenses, or monthly phone, cable, and internet services. It can be used to pay for things like rent, however, this reduces the amount of SSI benefit the beneficiary receives.
Can a special needs trust Massachusetts pay for a caregiver?
It is often necessary for a family to hire a caregiver to assist in providing care for a child, even an adult child, with disabilities. The special needs trust can pay for this care, but certain rules must be followed. There are a number of considerations when a trustee hires a caregiver for the beneficiary with disabilities. Certain rules pertain to whether the caregiver is a family member or not.
Insurance
One consideration is insurance. Whenever a trust employs a caregiver, whether it be a parent or another family member, or even a non-family member, insurance is an important consideration. Worker’s compensation insurance should always be considered where a caregiver is being employed. If the caregiver suffers an injury in the course of employment, the trust will be responsible. Worker’s compensation insurance makes sense. Casualty insurance is usually not an issue. However, where an outside non-family caregiver is employed, casualty losses from theft may result and appropriate insurance should be obtained.
Wage and Hour Laws
Wage and hour laws must be considered in setting payment for caregivers.
Withholding
There is an issue as to whether the caregiver is an employee or an independent contractor. If the caregiver is an employee, there must be withholding for FICA and FUTA. No such withholding is required for an independent contractor. The trust may consider employing a payroll service to administer payment to the caregiver. Caregivers often want to be paid “under the table.” It goes without saying that a trustee should always resist these requests. Significant factors in determining whether the caregiver is an employee or independent contractor include:
Instructions. Is the worker required to comply with the other person’s instructions with respect to when, where and how the work is to be performed?
Personal Service. Are the services to be performed personally or can they be sub-contracted?
Continuing Relationship. Is the relationship between the worker and the person being cared for continuing?
Work Hours. Is the worker required to work set hours?
Payment. Is the worker paid by the hour, week, or month?
Realization of Profit or Loss. Can the worker realize a profit or loss on an individual transaction?
Right to Discharge. Can the worker be discharged? If so, he or she is likely an employee.
Agency
It is almost always good practice for the trust to employ any non-family caregivers through an agency. It is a little more expensive to use an agency, rather than deal directly with a potential caregiver, but the agency has the responsibility of supervising the caregiver and paying taxes. The agency will be responsible for withholding and for worker’s compensation insurance.
Distributions to Parent as Caregiver
Most families prefer to keep their family members with disabilities at home and to keep the family intact. This is usually in the best interest of the special needs trust beneficiary. Family members are often in the best position to provide the care required by family members with disabilities. Many family member providers make significant sacrifices with respect to their careers and outside commitments. Providing care for the disabled family member becomes a life-long priority. Compensating the family caregiver from the self-settled special needs trust is often the only way that a family member is able to provide the necessary care. In many situations, the family caregiver must give up outside employment to provide this care. However, distributions from a special needs trust, especially a self-settled special needs trust, to a parent serving as a caregiver for a child with disabilities is fraught with problems. Trustees must carefully read the language of the trust document with respect to authorizing the trustee to make distributions for the beneficiary’s personal care needs. A properly drafted special needs trust should include language authorizing the trustee to retain the services of family caregivers. In the New York Region, which includes New Jersey, SSA is now taking the position that it is a violation of the sole benefit of the rule for a first-party special needs trust to pay a family member as a caregiver unless the family member is “medically trained.”
It should be noted that if a trust beneficiary is receiving only medical benefits under a Medicaid Waiver Program, these restrictions may not apply. For example, the Pennsylvania Department of Public Welfare (DPW) has indicated that it will not require training of family caregivers until the POMS are changed. Central Office did not indicate what is needed to document caregiver credentials. The Support Team suggested common sense be used and that the caregiver parent be trained appropriately. One factor that some State Medicaid Agencies consider is whether the parent left his/her job to care for the trust beneficiary.
Training
Is the proposed family caregiver trained to provide the services that are required by the person with disabilities? If not, the family member must receive training and even certification to perform these services. There are individuals available, usually, nurses, who will visit the family home and provide the necessary training. Since the trust cannot pay for this training, the parent usually makes payment out of the caregiver payments received by the parent.