There are several State and Federal benefit programs designed to assist those with disabilities but maintaining eligibility for such programs often requires that you have little to no resources or income. While this need based requirement seems reasonable on its face, it often results in the beneficiary losing his or her benefits upon receipt of a settlement or inheritance. When these assets are conveyed directly to the person in need, usually from the personal injury claim that created the need in the first place or from a loving relative trying to sustain a certain level of care for said person, it can have the unintended consequence of cutting off these crucial services and benefits. A special needs trust is a way to hold these settlement monies, gifts or inheritances while avoiding or limiting the impact this supplemental income can have on the person in need’s eligibility for government assistance.
In Arizona, there are several State and Federal programs available to assist qualified people in need: AHCCCS (Arizona Health Care Cost Containment System), ALTCS (Arizona Long Term Care System), SSI (Supplemental Security Income), SSDI (Social Security Disability Insurance), and Medicare. All of these programs have their own complex set of rules and requirements which cannot be detailed herein but almost all of these programs have income and resource limits which can affect the applicant’s eligibility. If you have a loved one whom benefits from one of these or a similar program, you must be very careful about how you structure any gift, insurance benefit, or inheritance to them to avoid running afoul of these limits. If you are a plaintiff in a personal injury suit or a personal injury attorney, you need to be aware of these pitfalls when negotiating and receiving a settlement. Under these circumstances, a special needs trust may be the appropriate instrument to maintain eligibility for these government benefits while using the trust funds to supplement the inevitable shortfalls of these programs.
A special needs trust can be created by a third party, such as a parent, grandparent or family friend, or by the party in need themselves. The former type doesn’t create as many potential pitfalls because the third party has the opportunity to carefully structure a trust with the required terms and language before conveying a gift. For example, the disabled beneficiary cannot act as the trustee and distributions from the trust must be purely in the discretion of the trustee. If there is an express schedule or triggering act for distributions, then such distributions will be included in any income qualification test. Trustees for these trusts will need to have training or experience in administration to most effectively use the trust assets for the benefit of the person in need without having such distributions counted as income. If the person in need receives money directly through a settlement or inheritance, the creation of a special needs trust for their benefit becomes more complex and each government program adds its own level of requirements. A.R.S. §36-2934.01 sets forth a host of requirements for maintaining a compliant trust and receiving ALTCS benefits while Medicaid requirements are laid out in 42 U.S.C. §1396p(d)(4)(A). Generally speaking, this special needs trust will need to be established by a parent, grandparent, guardian or a court. In the case of an upcoming civil award or an injury settlement, your personal injury attorney will need to advise you on how best to create and fund your trust. Sometimes it may be necessary to institute a temporary, limited conservatorship proceeding to set up and fund your special needs trust prior to the receipt of a settlement or an award.
Anyone will tell you that government programs designed to aid those of us with disabilities can be a difficult maze to navigate, fraught with potential pitfalls. Therefore, it goes to reason that the trust instrument designed to work within these guidelines to protect your settlement or inheritance will need to be a detailed and specific document prepared by a professional. If you are a plaintiff in a personal injury suit, ask your attorney if a special needs trust may be necessary for you. If you have a loved one with disabilities that you want to leave something to, make sure your gift doesn’t come with any unwanted consequences! If you want to know more about special needs trusts or you think you may need one, contact our office for a free consultation with an experienced estate planning attorney.