Self-Settled Special Needs Trust are useful when a disabled individual has enough assets that would put them over the threshold for Medicaid. Medicaid requires that the assets must be spent down to become eligible for Medicaid; there are a variety of ways of doing this legally, from paying down debt, funeral expenses, or asset purchases, but you cannot legally give the money away to become eligible for Medicaid. So, what is the best way to transfer assets and become eligible for Medicaid?
The Exception to the Rule
Sometimes called a First Party Special Needs Trust, it is referred to as “self-settled” because the trust will be funded solely with the funds of the applicant. Establishing this trust will allow the individual to place your assets in a trust and become eligible for Medicaid, but that means only assets; income is not allowed to be placed in the trust. There are also very specific requirements that must be met to qualify for the trust:
- The disabled individual must be under 65 years old
- The trust must be created by a guardian, parent, or grandparent
- The assets are only to be used for the benefit of the disabled individual
- The state that is paying the Medicaid benefits is to be labeled as the beneficiary
- Will be taxed as if the benefits still belong to the beneficiary
Creating the trust before the individual reaches the age of 65 allows for the assets to be used without penalty after the individual reaches 65. No new assets are allowed to be placed in the trust after the age of 65 is reached without transfer penalties being applied.
Self-Settled Special Needs Trusts have a very specific requirement that upon the death of the individual; any funds that remain in the trust are to go back to the state up to the amount that was paid out in Medicaid.
Language of the Trust
It is important that these trusts are worded in a specific manner to qualify for the special treatment granted by federal and state governments. It must:
- Make sure the intent of the creator is clearly not to diminish government benefits or assistance, but that the trust is being used in the proper manner.
- Forbid the trust’s assets from being used in a way that would impair the disabled individual from receiving further benefits.
- Prevent the disabled individual from distributing funds from the trust.
Using a Self-Settled Special Needs Trust can give the disabled person access to their own assets as well as ensuring they remain eligible for government assistance, if it is set up correctly. Contact Susan Sandys to see if this is the best option for you.