To learn more about special needs trusts generally, go the Special Needs Trusts section of Nolo.com.
CAUTION: See an expert if you want to fund a special needs trust during your lifetime. Unless there is a very specific reason to leave assets to a special needs trust while you are living, you shouldn’t because doing so might have gift tax consequences. During your lifetime, you can use funds held in your name to take care of your loved one with special needs. So, it's almost always unnecessary to fund a special needs trust before you die. If you believe that you need to add money to the trust while you are living, you should consult with a tax attorney or CPA to fully understand any gift tax consequences.
The best-known estate planning document is the will (also called a "last will and testament.") A will is relatively simple to create, and you can use it to specify which property you want held in the special needs trust.
You can leave almost any kind of property in your will—bank accounts, houses, businesses, personal property of any description, or intellectual property (patents, copyrights, trademarks), to name a few examples. You can prepare a will yourself, or get help from a lawyer. You can change it or prepare a new one at any time.
One big downside to using a will is that your property might get held up in probate after your death. With a few exceptions (for example, many states have simplified probate rules for small estates), probate is likely to take many months and cost many thousands of dollars. This will cause a delay in funding the special needs trust and might reduce the sum available to your loved one. To avoid these problems, consider using a revocable living trust instead.
To learn much more about wills, including how to make one yourself, go to the Wills section of Nolo.com.
Like a will, a living trust can be used to fund a special needs trust that will become effective at your death. The trust document lists the trust property that should pass to the trust rather than directly to the beneficiary. A simple revocable living trust works much like a will does to distribute property after your death. But a trust offers one big advantage over a will: Trust property doesn't need to go through probate court proceedings.
Property that isn’t held in your revocable living trust, or that hasn’t been legally passed some other way, will pass under the terms of your will. It's precisely for this reason that most people with a living trust also make a will—to handle any property that hasn’t been transferred to the living trust or left through some other means.
To learn much more about revocable living trusts, go to the Living Trusts section of Nolo.com.
You can also use beneficiary designations to leave assets to your special needs trust. You can name beneficiaries on many types of financial accounts, including:
The owner of the funds simply uses a form provided by the fund or securities manager to designate who gets the property upon the owner's death. Doing so ensures that the named beneficiary—a special needs trust, if you choose—will receive the property without probate.
In some states you can also use a “transfer on death deed,” to transfer real property to a named beneficiary when you die, without probate. For more about this, go to Transfer-On-Death Deeds for Real Estate on Nolo.com.
When using beneficiary designations to fund a special needs trust, name the trust as the beneficiary—not your loved one. (Leaving property directly to loved ones will jeopardize their eligibility for Supplemental Security Income ("SSI") and Medicaid.)
CAUTION: See an estate planning attorney or tax professional if you want to make a special needs trust a “designated beneficiary” of your retirement plan. Although you can add a great benefit to the special needs trust if you make the trust a “designated beneficiary” of an IRA, the trust must meet some specific rules.
Your loved one might come into some property—perhaps a personal injury settlement or an inheritance from a relative. At first thought, it might seem like a good idea to put that money straight into the existing special needs trust, to keep it from being counted as the beneficiary's resource and disqualifying the beneficiary from getting SSI. Bad idea. In fact, adding the beneficiary's own property to the special needs trust could make your loved one ineligible for SSI and Medicaid. That's because if the beneficiary's own property is mixed with the property you left in the special needs trust, it could all be considered the beneficiary's resource. And if the total amount exceeds the resource limit ($2,000 in 2024), the beneficiary would become ineligible for benefits.
A better alternative than adding property to a third-party trust is to create a separate first-party special needs trust. That way, assets in the original trust will remain off-limits as a resource, and eligibility for SSI and Medicaid won't be affected.
Read more about first-party special needs trusts in Special Needs Trust: First-Party vs. Third- Party Trusts.
Excerpted from Special Needs Trusts, by Steven Elias and Kevin Urbatsch (Nolo).
]]>Picking reliable people to manage the trust is crucial because trusts operate pretty much on the honor system. It’s true that the law imposes a duty on trustees to honestly and faithfully carry out the trust’s terms, but in most cases there's no court supervision.
The job of trustee requires a unique balance of care for the beneficiary, fiscal responsibility, ability to understand Supplemental Security Income ("SSI") and Medicaid laws, and more.
Every trustee and successor trustee you name must be willing to serve, so talk to all potential trustees in advance. Clearly explain under what conditions they would serve and what their duties would be. Before you name your trustees in the trust, make sure they accept the role you assign to them. Otherwise, when it comes time for them to serve, they might decline.
You might consider giving them a letter describing their duties, as discussed in The Trustee’s Job.
A special needs trust must be managed for the benefit of the beneficiary. This means that trustees must not act in their own interests—or the interests of others—when making investment or spending decisions.
In real life, however, it’s not uncommon to name the same person as both successor trustee and remainder beneficiary, named to get the "leftover" trust property when the trust ends. This creates a conflict of interest because every dollar spent on the beneficiary is a dollar that the remainder beneficiary won't receive.
However, an honest and honorable trustee will make decisions based solely on the beneficiary’s needs. And if you don’t expect the remainder beneficiary to inherit anything—for example, if the trust funds just won’t last that long—this might not be a big issue for you.
For special needs trust to function smoothly, the person serving as trustee should have a good working knowledge of the beneficiary’s needs. This relationship requires communication that's most likely to exist if the trustee has—or is able to develop—a close personal relationship with the beneficiary.
A good relationship makes it easier negotiate requests that the trustee might be reluctant to grant because they threaten to deplete trust assets. Also, the more familiar a trustee is with a beneficiary, the less likely it is that the trustee’s decisions will be based on bias or misconceptions about people with disabilities that are, unhappily, all too common.
To facilitate understanding between the trustee and the beneficiary, you might consider giving the trustee a letter describing the beneficiary’s needs, as we discuss in The Trustee’s Job.
When you’re choosing a trustee, you should do your best to find a trustee who will be around as long as the beneficiary needs the trust. This means you need to think about both the trustee’s life expectancy, and the life expectancy of the person with special needs.
If you your ideal trustee isn't the right age, in the trust document, you can give the trustee the ability to appoint a successor. Or, you could empower a trust protector to name a successor. (See below.)
Each trustee you name will need to become familiar with the rules that determine eligibility for SSI and Medicaid—and how the special needs trust can be used to supplement the beneficiary’s needs without violating these rules.
Some of the basic rules can be understood fairly easily. However, unless the trustee already has some experience with the rules of the public benefits programs, it might be best to get help from a professional—either a special needs planning lawyer or a nonlawyer with an expertise in public benefits counseling—at least until the trustee understands the rules. Learn more about How Special Needs Trust Funds Can Be Used.
Using trust money to provide for the special needs of a beneficiary is usually the fun part of being a trustee. Not so much fun is the business side of trust management: making reports, keeping records, filing tax returns, and making appropriate investment decisions.
If you’re not sure whether the trustee you have in mind is up to the task, you could name cotrustees or a trust advisor. (See the sections below.) Also keep in mind that a trustee who doesn't have the financial knowledge required to manage the trust can always get help from financial planners, tax professionals, and lawyers.
You might consider naming cotrustees if:
But if you go this route, keep in mind that naming cotrustees creates additional questions and concerns. Will the cotrustees cooperate? Should each be able to act for the trust alone, or must all agree to every action?
If you don’t want to put the special needs trust funds into the hands of a family member or friend, and a pooled trust doesn’t seems like the right choice either, you have another option: You can hire an expert—a professional or corporate trustee.
A professional trustee is an individual who administers the trust for a professional fee. Corporate trustees are financial institutions such as banks, savings and loan institutions, and some brokerage houses that will administer a trust for a fee. (Many corporate trustees will assume responsibility only for very large trusts—for example, trusts worth more than $250,000, or even $1,000,000.)
In addition to naming trustees, some special needs trusts name people to serve as "trust protectors" or “advisors” to the trustee on various issues, such as investment strategies or compliance with SSI and Medicaid rules. These advisors have no legal authority over the trust, but the trustee is asked to consult them in certain matters.
To learn more about special needs trust, go to the Special Needs Trusts section of Nolo.com.
This article was excerpted from Special Needs Trusts, by Steven Elias and Kevin Urbatsch (Nolo) which provides detailed information about a trustee’s job and how to choose the right trustee for your special needs trust. The book also provides all of the information and forms you need to create your own special needs trust.
]]>This article briefly describes the duties of the trustee. For more information read, Special Needs Trusts, by Kevin Urbatsch (Nolo).
A trustee’s most fundamental legal duty is to always act honestly and put the interests of the trust beneficiary first. This is commonly called the trustee’s fiduciary duty.
The trustee may, however, take actions that indirectly benefit other parties, as long as the sole purpose of the action itself is to help the beneficiary. For example, it’s all right to use trust money to buy a home for a beneficiary even if a relative may also live in the home and so also benefit.
Trustees who act in good faith generally won’t be personally liable for losses caused by their actions. Trustees could be held personally liable for acts that are judged (after the fact) to be unreasonably careless or, to use the legal term, negligent. Negligence is generally defined as the failure to take the proper care that a prudent person would take in similar circumstances.
For instance, if the beneficiary lost several months of SSI and Medicaid eligibility because the trustee forgot to prepare a report required by those programs, the trustee might be considered to have been negligent. The beneficiary, or the beneficiary’s guardian, could sue the trustee.
Here's a brief list of the duties and responsibilities of a trustee of a special needs trust:
As you can see, there's a lot on a trustee’s plate. You don’t have to choose one person to handle everything; these tasks can be shared by two or more cotrustees, handled by experts hired by an individual trustee as needed, or carried out by a trustee working for a pooled trust.
Learn more about choosing a trustee for a special needs trust and special needs pooled trusts on Nolo.com.
To help the people you expect to serve as trustees of the special needs trust, you might want to leave information about how to administer the trust. For example, you could explain the purpose of special needs trusts and how they work. And you could also describe how successor trustees can prove their authority under the trust, resign as trustee, or appoint a successor trustee if all named successors are unavailable.
You can draft this letter yourself, or start with the Trustee’s Duties Letter provided in Special Needs Trusts, by Kevin Urbatsch (Nolo).
In addition to a trustee’s duties letter, you might want to provide your successor trustee with information about the beneficiary.
For a special needs trust to benefit your loved one in the way you want it to, the people who succeed you as trustee need to understand and respond to the beneficiary's needs. This won't be a problem if the beneficiary can communicate them clearly. But if the disability impairs the beneficiary’s ability to think or communicate, then the more background information a trustee has about the beneficiary, the better. It’s up to you to make sure that your successor trustees will be adequately informed.
A good way to start is to keep a diary of your loved one’s needs or write a “beneficiary information letter.” The diary or letter should cover, among other things, your loved one’s family and medical history, education, employment, living situation, social life, routines, and religion. You can purchase a guide to writing a Letter to Caretaker of a Special Needs Child on Nolo.com. Or you can find this information in, Special Needs Trusts, by Kevin Urbatsch (Nolo).
To learn more about special needs trust, go to the Special Needs Trusts section of Nolo.com.
This article is excerpted from Special Needs Trusts, by Kevin Urbatsch (Nolo).
]]>Learn much more about Special Needs Trusts on Nolo.com.
Gloria C. Escobar, Grantor, is creating this special needs trust for the benefit of Bessie Escobar, Beneficiary. This trust shall become irrevocable upon execution.
Beneficiary has a disability and will likely require government assistance during Grantor’s life and after Grantor’s death. Grantor creates this special needs trust to enhance Beneficiary’s quality of life while at the same time preserving Beneficiary’s eligibility for government support and medical assistance programs, including SSI, Medicaid, or other similar programs. Grantor intends this Declaration of Trust to be interpreted in light of this purpose.
1. Grantor intends this trust to provide Beneficiary with goods and services to meet Beneficiary’s special needs, which are needs that are not provided for by any government programs.
2. Special needs include but are not limited to: out-of-pocket medical and dental expenses; medical equipment not provided by Medicaid or similar programs; eyeglasses; exercise equipment; annual independent checkups; transportation; vehicle maintenance; vehicle insurance premiums; life insurance premiums; physical rehabilitation services not covered by Medicaid or similar programs; essential dietary needs; materials for hobbies; tickets for recreational or cultural events; musical instruments; cosmetics; home furnishings; home improvements; computer or electronic equipment; cable television; telephones; televisions; radios; cameras; trips; vacations; visits to friends; entertainment; membership in book, health, record, video, or other clubs; newspaper and magazine subscriptions; athletic training or competitions; personal care attendant or escort; vocational rehabilitation or habilitation; professional services; costs of attending or participating in meetings, conferences, seminars, or training sessions; and tuition and expenses connected with all types of technical degree programs and higher education.
1. The following persons or entities shall serve, in the order listed, as trustee(s) of this special needs trust:
2. If Gloria C. Escobar is unavailable to serve, Rafael M. Escobar shall serve as a cotrustee instead.
3. All cotrustees shall act jointly.
4. Cotrustees shall cooperate with each other to carry out the trust purpose set out in Article 2, to prevent harmful and costly duplication of activities, and to avoid unnecessary delay in making disbursements to Beneficiary.
5. If no successor trustee named here is available to serve, Grantor’s administrator or executor may name a trustee to manage this special needs trust. If there is no executor or administrator, the successor trustee of Grantor’s revocable living trust, if any, may name a trustee to manage this trust. In the event there is no successor trustee of Grantor’s revocable living trust, then, on petition of any interested person, a court of competent jurisdiction shall designate the successor Trustee. In no event shall a court obtain jurisdiction over this trust by exercise of this provision.
6. All references to trustee in this trust document include each cotrustee named in this Article.
7. Any trustee may resign at any time. The resigning trustee shall give written notarized notice of the resignation to Beneficiary, Beneficiary’s legal guardian or conservator, all affected agencies, and all persons and entities named in the trust as successor trustees or remainder beneficiaries.
8. If a remainder Beneficiary is also named as a trustee or successor trustee, Grantor is aware of the potential conflict of interest and intends for the trustee or successor trustee to serve as provided for in this Declaration of Trust.
All authority and powers, including discretionary powers, conferred upon a trustee or cotrustee shall pass to all successor trustees.
Trustee shall accept contributions to the trust from any person or entity. However, Trustee shall not accept any assets that are owned by Beneficiary, including public assistance, Social Security benefits, or any other earned or unearned income.
Income earned from trust property shall be retained in the trust to be used for trust purposes. When making disbursements for Beneficiary’s benefit, Trustee shall keep adequate records to show that current and accumulated trust income is used first, and then trust principal.
Trustee shall cooperate with Beneficiary by providing information that is necessary for Beneficiary to obtain or maintain eligibility for needs-based public benefits and entitlement programs, including, but not limited to, Social Security payments, Supplemental Security Income, Social Security Disability Insurance, Veterans Administration benefits, HUD housing benefits, Medicare, and Medicaid. However, Trustee shall not be responsible to the Beneficiary to obtain or maintain Beneficiary’s eligibility for these programs.
Trustee shall have complete discretion in how the trust property is used, provided that the property is used only for the purpose of helping Beneficiary by providing Beneficiary with goods and services that supplement those provided by SSI, Medicaid, or similar programs, and never for a purpose that will eliminate Beneficiary’s eligibility for those programs unless it is in the best interests of the Beneficiary to do so. All actions of Trustee shall be directed toward carrying out the primary purpose of this trust to supplement Beneficiary’s public benefits. Trustee’s discretion to carry out this purpose is absolute. Hence, while Trustee is to be guided by the needs of Beneficiary, as determined by Trustee, in Trustee’s sole and absolute discretion, Trustee is not obliged to make any specific distributions under the terms of this trust. Because Trustee shall be solely responsible for determining what discretionary distributions may be made from this trust, Beneficiary does not have access to principal or income of the trust or authority to direct distributions from the trust for any purpose.
1. Trustee shall prepare and file all required trust tax returns.
2. Trustee shall provide to Beneficiary, or Beneficiary’s legal guardian, conservator, representative payee, or agent, if any, all information necessary for the reports required by a government agency as a condition of the Beneficiary’s continued eligibility for SSI, Medicaid, and other similar benefits.
3. Trustee shall annually provide Beneficiary, Beneficiary’s legal guardian, conservator, representative payee, or agent, if any, and the remainder beneficiaries named in Article 12, with written information about trust activity, including an accounting of current trust assets, income earned by the trust, contributions from outside sources made to the trust, disbursements made to meet Beneficiary’s special needs, and an accounting of all purchases by Trustee.
4. Upon request, Trustee shall provide the persons named in Section 3 of this Article with copies of the trust’s annual income tax returns.
5. If, when a remainder Beneficiary inherits property under this Article, he or she is not yet 18 years old, or, in the opinion of Trustee, is unable to prudently manage the property to be distributed and is under the age of 21, Trustee shall either (a) retain that Beneficiary’s share as a custodian under the Uniform Transfers to Minors Act of Kentucky, or (b) name another person to serve as custodian for the property under that Act and distribute the property to that custodian. The custodianship shall end when the remainder Beneficiary turns 21 unless the law requires it to end at age 18. When the custodianship ends, the custodian shall distribute any remaining custodial property to the Beneficiary.
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A trustee of any kind nominated by this document shall not be liable to any Beneficiary for the trustee’s acts or omissions, except in cases of willful misconduct, bad faith, or gross negligence.
I certify that I have read this Declaration of Trust and that it correctly states the terms and conditions under which the trust property is to be held, managed, and disposed of by the trustee, and I approve the Declaration of Trust.
Dated: June 15, 20xx
Gloria C. Escobar
Gloria C. Escobar, Grantor and Trustee
I certify that I have read The Bessie Escobar Special Needs Trust and, having been appointed as Trustee by Grantor, I agree to serve as Trustee and to manage the trust property under the trust’s terms and conditions.
Dated: June 15, 20xx
Richard Sanchez
Richard Sanchez, Trustee
Learn much more about Special Needs Trusts on Nolo.com, including whether using a Special Needs Trust Form is right for you.
Ready to make your own trust? Read Special Needs Trust: Protect Your Child’s Financial Future, by Kevin Urbatsch (Nolo).
]]>ABLE accounts are bank accounts that allow people with special needs to save money without jeopardizing their disability benefits. ABLE accounts come from the federal ABLE (Achieving a Better Life Experience) Act, but they are established and managed on a state level.
Most states have ABLE accounts, and each state has slightly different rules and procedures for opening and using an ABLE account. Below is an overview of the federal rules, as well as the features specific to Oregon's ABLE programs.
When people with special needs apply for disability benefits, they must show that they do not have enough money to support themselves independently. Money saved in a traditional bank account counts against the ability to qualify for disability benefits.
As a result, people with special needs are not able to build savings with the money they earn or that they receive through inheritance or gifts. On a day-to-day basis, this means that people with special needs must live with very little money if they want to receive government aid.
One workaround for this issue is to use a special needs trust which provides a place to save money that can be used for the benefit of the person with special needs (without affecting eligibility for benefits). But special needs trusts must be controlled by a trustee—not by the person with special needs who benefits from the trust. Not only does this leave a person with special needs with little control over his or her finances, it also limits the person's independence.
ABLE accounts fill this gap by giving people with special needs the opportunity to manage a modest bank account without penalty against their eligibility for SSI, Medicaid, or other government benefits.
The basic rules for all ABLE accounts come from the federal ABLE Act. When states adopt and implement the ABLE Act, they must follow the federal rules and can also add their own rules and regulations. Here are some of the federal rules:
Read more about the federal rules for ABLE Bank Accounts.
When individual states adopt the ABLE Act and provide ABLE accounts for their residents, they may also make rules and policies about:
Here are some details about Oregon’s ABLE accounts.
Employed individuals can contribute more. In addition to the $18,000 (in 2024) annual contribution, if the disabled person is working and not contributing to a defined contribution plan, deferred compensation plan, or annuity, the person can also contribute an additional amount to the ABLE account: up to the lesser of 1) their annual salary before tax or 2) $13,590 (in 2023; this number is tied to the federal poverty level and is adjusted each year for inflation).
Oregon income tax deduction. If you pay Oregon income tax, you may be able to take a small annual tax deduction of up to $300 for your Oregon ABLE account contributions.
You can learn about and compare ABLE accounts across the country at the website for the ABLE National Resource Center.
An ABLE account is just one planning tool for people with special needs. You might also be interested in learning more about Special Needs Trusts or Estate Planning in Oregon on Nolo.com.
]]>In 2014, Congress signed the Achieving a Better Life Experience (ABLE) Act into law to make it easier for those with disabilities or special needs to save money. Importantly, much of the fund won’t count against the disabled person’s ability to qualify for Supplemental Security Income (SSI) or Medicaid. The money in an ABLE account also grows tax-free.
Disabled individuals or their families may establish a single ABLE savings account, and the individual, family, friends, or anyone else may contribute a total of $18,000 into the account each year—that's per account, not per donor. The disabled person can use the funds in the ABLE account to pay for “qualified disability expenses,” such as education, food, housing, health care, and transportation.
In addition, some state ABLE programs allow disabled individuals who work to contribute an additional amount: up to the annual federal poverty guideline ($14,580 in 2023) or their annual salary before taxes, whichever is less.
ABLE accounts are only available to people who are blind or have a physical or mental impairment resulting in marked and severe functional limitations which can be expected to result in death or have lasted or are expected to last for at least 12 months. Moreover, the blindness or disability must have occurred before the person reached age 26. Disabled adults over age 26 may open ABLE Accounts provided they can prove they became disabled before they were 26.
Because people who became blind or disabled after age 26 are not eligible to open ABLE accounts, the great majority of the 61 million Americans who are blind or disabled are not eligible to open ABLE accounts. However, starting in January 2026, an individual who has a disabling condition that began before age 46 (rather than age 26) will be eligible, opening up ABLE Accounts to a greater number of people.
Anyone who started receiving disability benefits (SSI or SSDI) before age 26 is automatically eligible to open an ABLE account. Others can open an ABLE account by certifying, under penalty of perjury, that they meet the necessary requirements. This means they have a signed physician's diagnosis and will provide it to the program or the IRS upon request. However, eligible individuals with disabilities do not need to provide the written diagnosis when opening the ABLE account, and ABLE programs do not need to obtain or evaluate their medical records.
The biggest advantages of an ABLE account are these:
ABLE accounts also come with some significant limitations, including the following:
As with 529 college savings accounts, states run their own ABLE account programs. Each program has its own features. Money placed in an ABLE account is invested by the state. The account holders have only limited choices about how aggressively or conservatively the money should be invested.
You don't have to establish an ABLE account in the state in which you live. You can do so in any state with an ABLE account program that is open to out-of-state residents. (Most, but not all, state ABLE programs are open to nonresidents.) The ABLE National Resource Center has an online tool you can use to compare state ABLE programs.
Nolo also explores the features of several specific programs in a series on State ABLE Account Programs.
Special needs trusts are another useful option for people who receive disability benefits and want to protect and plan for their financial future. These trusts are designed to 1) provide for people with disabilities by giving them a source of funds that won't count against their eligibility for benefits and 2) name a trustee and a backup trustee to manage the trust for the benefit of the person with disabilities. These types of trusts are subject to strict federal rules, and you’ll need a lawyer to set one up. Read more about Special Needs Trusts.
]]>ABLE accounts are bank accounts that allow people with special needs to save money without jeopardizing their disability benefits. ABLE accounts come from the federal ABLE (Achieving a Better Life Experience) Act, but they are established and managed on a state level.
Most states have ABLE programs, and each state has slightly different rules and procedures for opening and using an ABLE account. Below is an overview of the federal rules, as well as the features specific to Massachusetts' ABLE program.
When people with special needs apply for disability benefits, they must show that they do not have enough money to support themselves independently. Money saved in a traditional bank account counts against the ability to qualify for disability benefits.
As a result, people with special needs are not able to build savings with the money they earn or that they receive through inheritance or gifts. On a day-to-day basis, this means that people with special needs must live with very little money if they want to receive government aid.
One workaround for this issue is to use a special needs trust which provides a place to save money that can be used for the benefit of the person with special needs (without affecting eligibility for benefits). But special needs trusts must be controlled by a trustee—not by the person with special needs who benefits from the trust. Not only does this leave a person with special needs with little control over his or her finances, it also limits the person's independence.
ABLE accounts fill this gap by giving people with special needs the opportunity to manage a modest bank account without penalty against their eligibility for SSI, Medicaid, or other government benefits.
The basic rules for all ABLE accounts come from the federal ABLE Act. When states adopt and implement the ABLE Act, they must follow the federal rules and can also add their own rules and regulations. Here are some of the federal rules:
Read more about the federal rules for ABLE Bank Accounts.
When individual states adopt the ABLE Act and provide ABLE accounts for their residents, they may also make rules and policies about:
Massachusetts' ABLE account program is called the Attainable Savings Plan. Here are some details.
Not FDIC insured. Note that unlike many ABLE programs in other states, Attainable Savings Plans are not insured by the FDIC.
Employed individuals can contribute more. In addition to the $18,000 (in 2024) annual contribution, if the disabled person is working and not contributing to a defined contribution plan, deferred compensation plan, or annuity, the person can also contribute an additional amount to the ABLE account: up to the lesser of 1) their annual salary before tax or 2) $13,590 (in 2023; this number is tied to the federal poverty level and is adjusted each year for inflation).
Penalties. If you use your account funds on something that is not a Qualified Disability Expense, you may have to pay income taxes and a 10% additional federal tax penalty on any earnings made on these funds. This withdrawal is also not a qualified expense and may affect your eligibility for benefits.
You can learn about and compare ABLE accounts across the country at the website of the ABLE National Resource Center.
An ABLE account is just one planning tool for people with special needs. You might also be interested in learning more about special needs trusts or estate planning in Massachusetts on Nolo.com.
]]>Most states have ABLE accounts, and each state has slightly different rules and procedures for opening and using an ABLE account.
California does have an ABLE program, called CalABLE. The program is open to residents and nonresidents, and California residents can open ABLE accounts in other states that allow it. See additional details below.
When people with special needs apply for disability benefits, they must show that they do not have enough money to support themselves independently. Any money a person has in a traditional bank account count against that person’s ability to qualify for disability benefits.
As a result, people with special needs are not able to build savings with the money they earn or that they receive through inheritance or gifts. On a day-to-day basis, this means that people with special needs must live with very little money if they want to receive government aid.
One workaround for this issue is to use a special needs trust which provides a place to save money that can be used for the benefit of the person with special needs (without affecting his or her eligibility for benefits). But special needs trusts must be controlled by a trustee—not by the person with special needs who benefits from the trust. Not only does this leave a person with special needs with little control over his or her finances, but it also limits the person’s independence.
ABLE accounts fill this gap by giving people with special needs the opportunity to manage a modest bank account without penalty against their eligibility for SSI, Medicaid, or other government benefits.
The basic rules for all ABLE accounts come from the federal ABLE Act. (Read the federal act here.) When states adopt and implement the ABLE Act, they must follow the federal rules and can also add their own rules and regulations. Here are some of the federal rules:
Read more about the federal rules in ABLE Savings Accounts for People With Special Needs.
When individual states adopt the ABLE Act and provide ABLE accounts for their residents, they may also make rules and policies about:
CalABLE, California's ABLE 529 program, launched in December 2018. Here are some details.
Employed individuals can contribute more. In addition to the $18,000 (in 2024) annual contribution, if the disabled person is working and not contributing to a defined contribution plan, deferred compensation plan, or annuity, the person can also contribute an additional amount to the CalABLE account: up to the lesser of 1) their annual salary before tax or 2) $14,580 (in 2023; this number is tied to the federal poverty level and is adjusted each year for inflation).
Penalties. If you use your account funds on something that is not a Qualified Disability Expense, you may have to pay income taxes and a 10% additional federal tax and a 2.5% California state tax on any earnings made on these funds.
You can learn about and compare ABLE accounts across the country at the website for the ABLE National Resource Center.
An ABLE account is just one planning tool for people with special needs. You might also be interested in learning more about Special Needs Trusts or Estate Planning in California on Nolo.com.
]]>ABLE accounts are bank accounts that allow people with special needs to save money without jeopardizing their disability benefits. ABLE accounts come from the federal ABLE (Achieving a Better Life Experience) Act, but they are established and managed on a state level.
Most states have ABLE accounts, and each state has slightly different rules and procedures for opening and using an ABLE account. Below is an overview of the federal rules, as well as the features specific to Illinois's ABLE program.
When people with special needs apply for disability benefits, they must show that they do not have enough money to support themselves independently. Money saved in a traditional bank account counts against the ability to qualify for disability benefits.
As a result, people with special needs are not able to build savings with the money they earn or that they receive through inheritance or gifts. On a day-to-day basis, this means that people with special needs must live with very little money if they want to receive government aid.
One workaround for this issue is to use a special needs trust which provides a place to save money that can be used for the benefit of the person with special needs (without affecting eligibility for benefits). But special needs trusts must be controlled by a trustee—not by the person with special needs who benefits from the trust. Not only does this leave a person with special needs with little control over his or her finances, it also limits the person's independence.
ABLE accounts fill this gap by giving people with special needs the opportunity to manage a modest bank account without penalty against their eligibility for SSI, Medicaid, or other government benefits.
The basic rules for all ABLE accounts come from the federal ABLE Act. When states adopt and implement the ABLE Act, they must follow the federal rules and can also add their own rules and regulations. Here are some of the federal rules:
Read more about the federal rules for ABLE Bank Accounts.
When individual states adopt the ABLE Act and provide ABLE accounts for their residents, they may also make rules and policies about:
Illinois' ABLE account program launched in 2017. Here are some details.
Employed individuals can contribute more. In addition to the $18,000 (in 2024) annual contribution, if the disabled person is working and not contributing to a defined contribution plan, deferred compensation plan, or annuity, the person can also contribute an additional amount to the under the Illinois "ABLE and Working" feature. The individual can make an additional contribution of up to the lesser of 1) their annual salary before tax or 2) $13,590 (in 2023; this number is tied to the federal poverty level and is adjusted each year for inflation).
Illinois income tax deduction. Illinois taxpayers can make tax-deductible contributions to ABLE accounts of up to $10,000 for a single filer or $20,000 for those filing jointly. Talk to your tax adviser to learn more about this benefit.
You can learn about and compare ABLE accounts across the country at the website for the ABLE National Resource Center.
An ABLE account is just one planning tool for people with special needs. You might also be interested in learning more about Special Needs Trusts or Estate Planning in Illinois on Nolo.com.
]]>ABLE accounts are bank accounts that allow people with special needs to save money without jeopardizing their disability benefits. ABLE accounts come from the federal ABLE (Achieving a Better Life Experience) Act, but they are established and managed on a state level.
Most states have ABLE accounts, and each state has slightly different rules and procedures for opening and using an ABLE account. Below is an overview of the federal rules, as well as the features specific to Ohio's ABLE program.
When people with special needs apply for disability benefits, they must show that they do not have enough money to support themselves independently. Money saved in a traditional bank account counts against the ability to qualify for disability benefits.
As a result, people with special needs are not able to build savings with the money they earn or that they receive through inheritance or gifts. On a day-to-day basis, this means that people with special needs must live with very little money if they want to receive government aid.
One workaround for this issue is to use a special needs trust which provides a place to save money that can be used for the benefit of the person with special needs (without affecting eligibility for benefits). But special needs trusts must be controlled by a trustee—not by the person with special needs who benefits from the trust. Not only does this leave a person with special needs with little control over his or her finances, it also limits the person’s independence.
ABLE accounts fill this gap by giving people with special needs the opportunity to manage a modest bank account without penalty against their eligibility for SSI, Medicaid, or other government benefits.
The basic rules for all ABLE accounts come from the federal ABLE Act. When states adopt and implement the ABLE Act, they must follow the federal rules and can also add their own rules and regulations. Here are some of the federal rules:
Read more about the federal rules for ABLE Bank Accounts.
When individual states adopt the ABLE Act and provide ABLE accounts for their residents, they may also make rules and policies about:
Ohio's ABLE account program, STABLE, launched in 2016. Here are some details:
Employed individuals can contribute more. In addition to the $18,000 (in 2024) annual contribution, if the disabled person is working and not contributing to a defined contribution plan, deferred compensation plan, or annuity, the person can also contribute an additional amount to the STABLE account: up to the lesser of 1) their annual salary before tax or 2) $13,590 (in 2023; this number is tied to the federal poverty level and is adjusted each year for inflation).
Ohio income tax deduction. If you pay Ohio income tax, you may be able to take an annual tax deduction of up to $4,000 for your STABLE account contributions. In addition, you can carry forward any contributions in excess of this amount to future tax years.
Penalties. If you use your account funds on something that is not a Qualified Disability Expense, you may have to pay income taxes and a 10% additional federal tax penalty on any earnings made on these funds. This withdrawal is also not a qualified expense and may affect your eligibility for benefits.
You can learn about and compare ABLE accounts across the country at the website for the ABLE National Resource Center.
An ABLE account is just one planning tool for people with special needs. You might also be interested in learning more about Special Needs Trusts or Estate Planning in Ohio on Nolo.com.
]]>ABLE accounts are bank accounts that allow people with special needs to save money without jeopardizing their disability benefits. ABLE accounts come from the federal ABLE (Achieving a Better Life Experience) Act, but they are established and managed on a state level.
Most states have ABLE accounts, and each state has slightly different rules and procedures for opening and using an ABLE account. Below is an overview of the federal rules, as well as the features specific to New York's ABLE program.
When people with special needs apply for disability benefits, they must show that they do not have enough money to support themselves independently. Money saved in a traditional bank account counts against the ability to qualify for disability benefits.
As a result, people with special needs are not able to build savings with the money they earn or that they receive through inheritance or gifts. On a day-to-day basis, this means that people with special needs must live with very little money if they want to receive government aid.
One workaround for this issue is to use a special needs trust which provides a place to save money that can be used for the benefit of the person with special needs (without affecting eligibility for benefits). But special needs trusts must be controlled by a trustee—not by the person with special needs who benefits from the trust. Not only does this leave a person with special needs with little control over his or her finances, it also limits the person's independence.
ABLE accounts fill this gap by giving people with special needs the opportunity to manage a modest bank account without penalty against their eligibility for SSI, Medicaid, or other government benefits.
The basic rules for all ABLE accounts come from the federal ABLE Act. When states adopt and implement the ABLE Act, they must follow the federal rules and can also add their own rules and regulations. Here are some of the federal rules:
Read more about the federal rules for ABLE Bank Accounts.
When individual states adopt the ABLE Act and provide ABLE accounts for their residents, they may also make rules and policies about:
Here are some details about New York's ABLE account program, NY ABLE.
Employed individuals can contribute more. In addition to the $18,000 (in 2024) annual contribution, if the disabled person is working and not contributing to a defined contribution plan, deferred compensation plan, or annuity, the person can also contribute an additional amount to the NY ABLE account: up to the lesser of 1) their annual salary before tax or 2) $13,590 (in 2023; this number is tied to the federal poverty level and is adjusted each year for inflation).
You can learn about and compare ABLE accounts across the country at the website for the ABLE National Resource Center.
An ABLE account is just one planning tool for people with special needs. You might also be interested in learning more about Special Needs Trusts or Estate Planning in New York on Nolo.com.
]]>ABLE accounts are bank accounts that allow people with special needs to save money without jeopardizing their disability benefits. ABLE accounts come from the federal ABLE (Achieving a Better Life Experience) Act, but they are established and managed on a state level.
Most states have ABLE accounts, and each state has slightly different rules and procedures for opening and using an ABLE account. Below is an overview of the federal rules, as well as the features specific to Florida's ABLE United program.
When people with special needs apply for disability benefits, they must show that they do not have enough money to support themselves independently. Any money a person has in a traditional bank account count against that person’s ability to qualify for disability benefits.
As a result, people with special needs are not able to build savings with the money they earn or receive through inheritance or gifts. On a day-to-day basis, this means that people with special needs must live with very little money if they want to receive government aid.
One workaround for this issue is to use a special needs trust which provides a place to save money that can be used for the benefit of the person with special needs (without affecting eligibility for benefits). But special needs trusts must be controlled by a trustee—not by the person with special needs who benefits from the trust. Not only does this leave people with special needs with little control over their finances, it also limits their independence.
ABLE accounts fill this gap by giving people with special needs the opportunity to manage a modest bank account without penalty against their eligibility for SSI, Medicaid, or other government benefits.
The basic rules for all ABLE accounts come from the federal ABLE Act. When states adopt and implement the ABLE Act, they must follow the federal rules and can also add their own rules and regulations. Here are some of the federal rules:
Read more about the federal rules for ABLE Bank Accounts.
When individual states adopt the ABLE Act and provide ABLE accounts for their residents, they may also make rules and policies about:
Here are some details about Florida’s ABLE United account.
Employed individuals can contribute more. In addition to the $18,000 (in 2024) annual contribution, if the disabled person is working and not contributing to a defined contribution plan, deferred compensation plan, or annuity, the person can also contribute an additional amount to the ABLE United account: up to the lesser of 1) their annual salary before tax or 2) $13,590 (in 2023; this number is tied to the federal poverty level and is adjusted each year for inflation).
Medicaid expenses. A change in Florida law in 2019 also abolished Medicaid recovery from ABLE accounts. If the disabled person receives Medicaid benefits, this change is very favorable. Any remaining funds in an ABLE account must first be used for qualified disability expenses (including burial and funeral costs) and then the remainder can be transferred to the account beneficiaries (inheritors) without first reimbursing Medicaid costs.
You can learn about and compare ABLE accounts across the country at the website for the ABLE National Resource Center.
An ABLE account is just one planning tool for people with special needs. You might also be interested in learning more about Special Needs Trusts or Estate Planning in Florida on Nolo.com.
]]>ABLE accounts are bank accounts that allow people with special needs to save money without jeopardizing their disability benefits. ABLE accounts come from the federal ABLE (Achieving a Better Life Experience) Act, but they are established and managed on a state level.
Most states have ABLE programs, and each state has slightly different rules and procedures for opening and using an ABLE account. Below is an overview of the federal rules, as well as the features specific to Massachusetts' ABLE program.
When people with special needs apply for disability benefits, they must show that they do not have enough money to support themselves independently. Money saved in a traditional bank account counts against the ability to qualify for disability benefits.
As a result, people with special needs are not able to build savings with the money they earn or that they receive through inheritance or gifts. On a day-to-day basis, this means that people with special needs must live with very little money if they want to receive government aid.
One workaround for this issue is to use a special needs trust which provides a place to save money that can be used for the benefit of the person with special needs (without affecting eligibility for benefits). But special needs trusts must be controlled by a trustee—not by the person with special needs who benefits from the trust. Not only does this leave a person with special needs with little control over his or her finances, it also limits the person's independence.
ABLE accounts fill this gap by giving people with special needs the opportunity to manage a modest bank account without penalty against their eligibility for SSI, Medicaid, or other government benefits.
The basic rules for all ABLE accounts come from the federal ABLE Act. When states adopt and implement the ABLE Act, they must follow the federal rules and can also add their own rules and regulations. Here are some of the federal rules:
When individual states adopt the ABLE Act and provide ABLE accounts for their residents, they may also make rules and policies about:
Virginia was the first state to pass ABLE legislation after the federal act was passed by Congress. Here are some details about Virginia’s ABLE account.
Employed individuals can contribute more. In addition to the $18,000 (in 2024) annual contribution, if the disabled person is working and not contributing to a defined contribution plan, deferred compensation plan, or annuity, the person can also contribute an additional amount to the ABLE account: up to the lesser of 1) their annual salary before tax or 2) $13,590 (in 2023; this number is tied to the federal poverty level and is adjusted each year for inflation). Read more about this option, called the ABLE to Work contribution.
Virginia income tax deduction. If you pay Virginia income tax, you might be able to take an annual tax deduction of up to $2,000 for your ABLEnow account contributions.
You can learn about and compare ABLE accounts across the country at the website for the ABLE National Resource Center.
An ABLE account is just one planning tool for people with special needs. You might also be interested in learning more about Special Needs Trusts or Estate Planning in Virginia on Nolo.com.
]]>What is an irrevocable special needs trust?
Special needs trust are trusts designed to improve the quality of life of a person with special needs, without affecting that person’s eligibility for government benefits. To be effective, a special needs trust must be irrevocable. This means that after you sign it and have it notarized, you can’t revoke it, and you can amend or terminate it only under specific circumstances provided for in the trust itself. If you wish to completely change a special needs trust, you simply create another one and amend your estate planning documents to leave assets to the new special needs trust so that the original trust is never funded.
Learn more about how Special Needs Trusts work on Nolo.com.
Can a special needs trust pay the rent, mortgage, or groceries? Yes, it can, but you might run into some drawbacks. To understand why, it's important to first understand that when the trustee of a special needs trust pays for the beneficiary’s food or shelter, the amount paid is considered income to the beneficiary. Specifically, it’s called in-kind income or in-kind support and maintenance (ISM). The SSI program treats ISM differently from other types of income.
If the ISM can be assigned a specific value, that amount is deducted from the SSI grant—up to a limit. The amount of the deduction is currently capped at $300.33 in 2022. (This value, which is tied to the federal benefit rate, goes up each year).
EXAMPLE: Leo, who lives in his own home and receives an SSI grant because of his Down Syndrome, loves to eat out. Each month, Leo’s restaurant tab averages $120. If the cost of the meals is picked up by a special needs trust or other outside source, Leo’s SSI grant will be reduced dollar for dollar by $120. If Leo had fancier tastes and, courtesy of his special needs trust, spent $500 a month eating out, his grant would also be reduced, but only by a maximum of $300.33.
These rules mean that, if necessary, a special needs trust can provide your loved one with food or shelter—and still leave your loved one with the lion’s share of the SSI grant as well as continued eligibility for Medicaid benefits.
The question of ISM comes up most often with shelter, because the SSI grant is so inadequate when it comes to paying rent in the private housing market. If you use the special needs trust to pay for rent or mortgage payments on a house owned by the beneficiary, these payments are considered ISM, so they trigger a reduction of the SSI grant. Still, if a beneficiary’s shelter needs can be met only through rental assistance from the special needs trust, a $300.33 reduction in the monthly SSI grant can be well worth it.
EXAMPLE: Sonya, the beneficiary of a special needs trust, receives SSI and Medicaid. When Sonya’s group home closes, she is forced to rent housing at private market rates. She finds a suitable apartment for $2,000 per month—considerably more than her potential $841 SSI grant. The trustee of Sonya’s special needs trust decides to pay for all of Sonya’s rent and utilities, a total of $2,300 a month. Trust payments for rent and utilities are considered ISM, so Sonya’s SSI grant will be reduced. The federal portion of the grant in 2022 is $841, and Sonya will lose $300.33 of her SSI check. She will also continue to receive Medicaid. In other words, Sonya’s trust pays $2,300 for a nice, safe and clean apartment for Sonya, and her SSI is reduced only by $300.33. She continues to receive $540.67 in SSI.
It’s important to know how much SSI a beneficiary is receiving. If Sonya was receiving less than $300.33 in SSI because she was receiving income from another source, the payment of the rent in the example above would eliminate her eligibility for SSI. Thus, it is important to know how much SSI the person with a disability is receiving to make sure that there is not a total loss of SSI and an accompanying loss of Medicaid.
Once the ISM maximum reduction of $300.33 (in 2022) is reached, the trustee may pay for all the beneficiary’s food, rent, and utilities without any further reduction in SSI.
If a special needs trust owns a house or has enough assets to buy one outright, the beneficiary may be able to live in the house rent-free without affecting his or her SSI grant. (For more about this, read How Special Needs Trust Funds Can Be Used.)
However, if the trust pays other expenses associated with shelter—such as electricity, heat, or water—the amounts are considered ISM, and the grant is reduced dollar-for-dollar up to the $300.33 per month (in 2022) maximum deduction, as described above. If the trust were making mortgage payments on the house, those payments would also be considered ISM and would result in an SSI reduction, up to $300.33 per month.
The maximum federal SSI grant increases every year, as the cost of living increases. In 2022, it is $841. The maximum deduction for ISM is one-third of this amount, plus $20: $300.33.
For more information on federal and state SSI benefits, visit the Social Security Administration’s website at www.ssa.gov.
For the ISM maximum deductions each year, see the SSA's Values for In-Kind Support and Maintenance.
Food stamps, low-income housing assistance, state-funded cash benefits, and noncash government benefits don’t count as income in kind for purposes of computing an SSI grant.
Before deciding whether you should use the funds in a special needs trust to pay for rent, mortgage, or food, you should understand how much money will be deducted from the beneficiary's SSI grant, and whether that deduction is worth it (or, conversely, could cause you to lose SSI and Medicaid benefits). In other words, ask the following:
To learn more about special needs trust, go to Nolo's Special Needs Trusts section.
For a detailed description about properly administering a special needs trust, read Administering the California Special Needs Trust, by Kevin Urbatsch and Michele Fuller.
This article was excerpted from Special Needs Trusts, by Kevin Urbatsch and Michele Fuller-Urbatsch (Nolo), which provides all of the information and forms you need to create a special needs trust without a lawyer.
]]>It’s common for the trustee to pay for a broad variety of services provided to the beneficiary—for example, travel, education, caregiving, or medical services not provided by Medicaid. The person serving as trustee can buy the beneficiary “non countable” assets without worrying about how much they’re worth.
Non countable resources are types of property not considered to be a resource by the SSI and Medicaid programs for purposes of determining the owner's program eligibility. A beneficiary can usually own a substantial amount of these types of property without losing eligibility for SSI and Medicaid.
So a trustee may use trust funds to buy non countable items such as:
Anyone who owns more than $2,000 worth of countable resources is not eligible for SSI. So a trustee should not give the beneficiary countable assets worth more than $2,000. If a trustee gives the beneficiary countable assets worth less than $2,000, the beneficiary’s SSI grant will be reduced, dollar for-dollar, in the month the income is received. (A small exception to this rule is that the first $20 of a gift received in a given month is not counted.)
Countable resources include:
How does the SSI program know what and how much a recipient owns? Generally, the bureaucracy relies on the recipient’s own required reports and on information from the IRS, state motor vehicles department, and banks. If for some reason an investigation is begun, the recipient’s financial affairs will be examined more closely.
Read more about countable and non countable resources at http://www.socialsecurity.gov/ssi/text-resources-ussi.htm.
Learn more about The Trustee’s Job.
For a detailed description about properly administering a special needs trust, read Administering the California Special Needs Trust, by Kevin Urbatsch.
Excerpted from Special Needs Trusts, by Kevin Urbatsch and Michele Fuller (Nolo).
]]>There are three main types of special needs trusts:
This article discusses the typical "third-party" special needs trust, which is designed to help you leave gifts or an inheritance to people with special needs while protecting their eligibility for government benefits. If the person with special needs already owns assets—such as from a personal injury award, retirement plan, life insurance policy, or an unplanned-for inheritance—that person can take steps to protect those assets, but not through the type of trust described here. If the assets already belong to the person with special needs, you can consider "first-party" trusts, which have more restrictive rules. You'll want to work with an experienced special needs trust attorney.
If you don't want to set up your own special needs trust, you can also look into an already existing "pooled trust." Most states have at least one nonprofit organization that operates this type of trust. In a pooled trust, gifts to many beneficiaries are combined, and the trustee of the pooled trust will invest and spend funds for the beneficiaries. Learn more about pooled special needs trusts.
To create a special needs trust, you must first create the trust document. You don't need a lawyer to set up a basic no-frills special needs trust, and having one that you make yourself is often better than not having a trust at all. Special Needs Trusts, by Kevin Urbatsch and Michele Fuller-Urbatsh (Nolo) provides forms and instruction for creating a simple special needs trust, without a lawyer. However, many families will benefit from getting trust tailored to their specific situation. To get a personalized trust, consult a lawyer for help.
In the trust document, the person setting up the trust (usually called the “grantor” or “settlor”) places property in the hands of another person to manage the trust (called the “trustee”). Typically, the grantor of a special needs trust names himself or herself as trustee and another trusted person successor trustee. The grantor serves as trustee until he or she dies, becomes incapacitated, or resigns; at that time the successor trustee takes over. Each person who serves as trustee is legally obligated to follow the terms of the trust document to use the property for the benefit of the person with special needs, identified in the trust document (the “beneficiary”).
The trust will take effect when you sign it and have it notarized. Not long after that (when you get the trust’s tax identification number from the IRS), you can add a little cash to the trust by opening a bank account with a minimal deposit. At that point the trust is ready to be funded through the wills, living trusts, beneficiary designations, or other estate planning tools of those who want to help support the beneficiary with special needs. (More on this below.)
Anyone (except the beneficiary of the trust) can contribute property to a special needs trust. Although these trusts are most often created by parents for their children, you don’t need any family relationship to create or give money to a trust for someone. And there is no limit to the number of trusts that may be created for a particular beneficiary.
Virtually any type of property can be held in a special needs trust, including real estate, stocks, collections, a business, patents, or jewelry. But because the primary purpose of a special needs trust is to use cash money to pay for items that aren’t provided by SSI or Medicaid, special needs trusts typically give the trustee authority to sell tangible items (cars or jewelry, for example) to raise cash. In order to decide whether to keep or sell tangible items, the trustee will need a good understanding of the beneficiary’s personal needs and basic sound investment rules. Learn more about The Trustee’s Job.
The person who creates a special needs trust often makes the initial transfer of assets into the trust—usually, just a small amount of money. Then, commonly, a parent, grandparent, or other relative leaves property to the trust by:
If you're interested in learning more about special needs trust funds, read How to Leave Property to a Special Needs Trust.
After the trust is funded, the trustee role becomes critical. The main job of the trustee is to use trust funds to support the beneficiary without jeopardizing government benefits. In order to do this, the trustee must have a good understanding about how eligibility works—and he or she must be willing to keep up with the law. The trustee also has many other duties, including paying taxes, keeping records, investing trust property, and keeping up to date with the beneficiary’s needs. Learn more about The Trustee’s Job.
Trust assets can be used for almost anything that is not illegal or contrary to the terms in the trust. Because the primary purpose of a special needs trust is to enhance the quality of life of the beneficiary with a disability, the list of things that can be paid for is quite broad. Generally, trust funds can be used to pay for:
Payments for food or shelter are more complicated because they generally trigger a reduction in SSI benefits. However, even though it’s tricky, it often still makes sense for trustees to use trust funds for food and shelter because there are exemptions and rules that make the trade-off worthwhile.
On the other hand, trust funds cannot be used for things that would make the beneficiary ineligible for government benefits, such as large gifts of cash. Learn more about How Trust Funds Can Be Used and Payments for Food and Shelter.
The special needs trust ends when it’s no longer needed. There are four reasons to end a special needs trust:
Here are some potential drawbacks to consider before creating a special needs trust:
To learn more about special needs trusts, go to the Special Needs Trusts section of Nolo.com.
This article was excerpted from Special Needs Trusts, by Kevin Urbatsch and Michele Fuller-Urbatsch (Nolo).
]]>Can I make a special needs trust without a lawyer?
Most families will use a lawyer to make a special needs trust. In many cases, the language of the special needs trust must be technical and precise. In order to keep trust funds from becoming the beneficiary's own property (and disqualifying the disabled individual from Medicaid), the trust document must include specific language required by federal and state regulations.
Special needs trusts also provide the opportunity to leave very individualized instructions about the individual's needs, as well as instructions for how trust funds can be used. An experienced lawyer will have the skills to include such details and instructions, without jeopardizing the integrity of the trust.
That said, in some situations, making a special needs trust without a lawyer is a reasonable choice.
Can you safely set up a special needs trust yourself? You can use a special needs trust form in certain situations. Consider the following:
If you're ready to make your own special needs trust or just want to learn more about how they work, read Special Needs Trusts, by Kevin Urbatsch. This book shows you how to leave any amount of money to your disabled loved one without jeopardizing government benefits. It provides plain-English information and forms that let you create a special needs trust by modifying your will or living trust document.
Learn more about Special Needs Trusts.
Owning a house, a car, furnishings, and normal personal effects does not affect eligibility for SSI or Medicaid. But other assets, including cash in the bank, will. For example, if you leave your loved one $10,000 in cash, that gift would disqualify your loved one from receiving SSI or Medicaid.
A special needs trust is a trust that holds funds for your loved one but does not impact your loved one's financial eligibility for government programs. If you have loved ones with special needs, you can use a special needs trust to leave behind money that will improve their quality of life. That is, instead of leaving property directly to your loved one, you would leave it to the special needs trust.
The money in the special needs trust is managed by a trustee, and is not considered to be part of your loved one's assets when calculating their financial eligibility for government programs like SSI and Medicaid.
Learn more about Who Can Benefit from a Special Needs Trust.
The trust ends when it is no longer needed—commonly, at the beneficiary's death or when the trust funds have all been spent.
If you're looking to set up a special needs trust, learn more about How Special Needs Trusts Work.
The trustee cannot give money directly to your loved one—that could interfere with eligibility for SSI and Medicaid. But the trustee can spend trust assets to buy a wide variety of goods and services for your loved one. Special needs trust funds are commonly used to pay for personal care attendants, vacations, home furnishings, out-of-pocket medical and dental expenses, education, recreation, vehicles, and physical rehabilitation.
Learn more about How Special Needs Trust Funds Can Be Used.
If you can't come up with a good candidate to serve as a trustee or are leaving a relatively modest sum and don't want to set up a separate special needs trust, consider a "pooled trust." These are special needs trusts run by nonprofit organizations that pool and invest funds from many families. Each trust beneficiary has a separate account, and the trustee chosen by the nonprofit spends money on behalf of each beneficiary. Pooled trusts (also called community trusts) are available in many areas of the country.
Learn more about Special Needs Pooled Trusts.
If your loved one with a disability is the only person you want to provide for after your death, then you'll probably want to put your entire estate into your special needs trust and hope it lasts as long as your loved one needs help.
Many people, however, want to leave money not just to a loved one with a disability, but also to others. Or you may have more money than you think your loved one will ever need. In those situations, you'll need to consider:
So, how should you juggle all of these factors so that you come out with the right funding for your special needs trust? The short answer is, it's almost impossible to come up with meaningful numbers without the right calculators, and expertise, at your fingertips. Consider getting help from a professional. Here are three companies that have created departments specially designed to assist in financial planning for persons with disabilities:
You can also get help from certified financial planners.
To learn more about special needs trusts, go to Nolo's Special Needs Trusts section.
Some lawyers will tell you that only an attorney can draft a special needs trust. But you can create a special needs trust yourself, with the right guidance.
Of course, there are times when you should seek an attorney's advice. For example, you must see a lawyer if you want to create a trust that will be funded with the beneficiary's own money (for example, a settlement from a personal injury lawsuit), rather than your money. Complicated and state-specific rules apply to these kinds of trusts.
The book Special Needs Trusts: Protect Your Childs Financial Future, by Kevin Urbatsch (Nolo), explains when you should seek an attorney's advice to set up a special needs trust. If you determine that you don't need a lawyer, you can use the book's forms and plain-English instructions to set up your own special needs trust.
While special needs trusts can be very helpful, they're not for everyone. You can also explore alternatives to special needs trusts, such as:
A special needs trust you create and fund with your own property to help a loved one with special needs is called a third-party trust, and it will not protect any property that person receives directly through inheritance, a court settlement, insurance, or any other payment. Only a first-party special needs trust can protect the property of a person with special needs.
A third-party special needs trust is the typical type of trust used to benefit a person with special needs. Commonly, family members create a trust for a loved one with special needs and leave property in the trust through their estate plan (their will, trust, life insurance, or other beneficiary designation). Learn more about How to Leave Property to a Special Needs Trust.
The trustee of the trust uses trust funds to support the person with special needs. When doing so, the trustee must carefully abide by trust requirements – trust funds cannot be used for anything that would make the beneficiary ineligible for benefits, such as cash gifts. But the trustee may use trust funds for many other things, including classes, hobbies, luxury items, personal services, furniture, professional fees, computer equipment, pet supplies, transportation, and vacations. The beneficiary never owns the property in the trust and does not have direct access to trust funds.
Unlike third-party trusts, which are funded by property owned by someone other the beneficiary, a first-party trust is used for the property of person with special needs. A person with special needs might acquire property though a:
But if a person with special needs owns any significant amount of property outright, it will affect eligibility for government benefits. So instead of owning the property directly, the person with special needs puts the property into a first-party trust. If the trust is created properly, adhering to strict government rules, those assets can be used to benefit the person with special needs without jeopardizing eligibility for government benefits.
There are several variations of this type of trust, including a “payback special needs trust,” “litigation special needs trust,” “Miller Trust,” “pooled SNT,” “(d)(4)(A) SNT,” or “(d)(4)(C) SNT.” All of these trusts are subject to specific federal and state rules designed to keep applicants from sheltering their property in order to meet program eligibility requirements. They are also generally subject to “payback” rules that require that the state be reimbursed for medical expenses after the trust beneficiary dies. Because each state has very specific rules that constantly change, to create a first-party trust, you’ll need the help of a lawyer in your state who has experience with first-party special needs planning.
Learn more about how thrid-party special needs trusts work in the Special Needs Trusts section of Nolo.com. Also, this article was excerpted in part from Special Needs Trusts, by Steven Elias and Kevin Urbatsch (Nolo), which provides all of the information and forms you need to create your own third-party special needs trust without the help of a lawyer.
If you want to learn more about first-party special needs trusts, see our article on using a special needs trusts for your own assets. Or, find an estate planning lawyer with the experience you need.
]]>What is a testamentary special needs trust?
A testamentary special needs trust is a special needs trust that goes into effect when the trust maker dies. There are two ways to put a special needs trust into effect – you can set it up and put it into effect while you are alive (an inter vivos trust), or you can set it up and have it go into effect when you die (a testamentary trust). In either case, after the trust goes into effect, in order to protect the beneficiary’s eligibility for government benefits, it must be irrevocable. So the advantage of making a testamentary special needs trust is that you can modify it while you’re still alive, because it hasn’t yet gone into effect.
Learn more about Special Needs Trusts on Nolo.com
Learn more about the basics of special needs trusts.
Who is eligible for a special needs trust? You can make a special needs trust for anyone you like, so the primary question to ask is not who qualifies for a special needs trust, but whether the benefits (having a trusted person or trustee in place to manage the funds, retaining eligibility for government programs, and so on) are worth the tradeoff: your loved one won't have direct access to the funds in the trust.
Special needs trusts can work for a variety of people. This includes people with permanent or temporary special needs, people who may someday have special needs, anyone who currently receives SSDI or Medicare but might later benefit from SSI or Medicaid, as well as anyone who is unable to manage their finances on their own. These categories of people are discussed below.
Special needs trusts are most commonly used for people who likely will need government assistance from the SSI and Medicaid programs because of a permanent or severe disabling condition.
Not all persons with a disability qualify for SSI or Medicaid. Someone who is commonly understood to be “disabled” may not qualify for these public benefits if, despite the disabling condition, the person is able to earn a living.
People with blindness, developmental disabilities, Down syndrome, organic brain damage, chronic mental illness, physical paralysis (paraplegia), or congenital disabling afflictions such as cerebral palsy or cystic fibrosis have been the most common automatic beneficiaries of government benefits for persons with disabilities. But there are many other physical and mental conditions that meet the Social Security Administration’s definition of disability and that are likely to last a lifetime.
Learn more about Social Security Disability and SSI.
Many factors make it hard to predict whether someone who currently has a disability will always need to rely on SSI and Medicaid. Many disabling conditions are not permanent, and changes in the workplace, new treatments for disabilities, and new technologies for those living with disabilities may affect whether your loved one will need government benefits in the future.
While you may not be able to know with certainty whether your loved one will continue to need SSI or Medicaid, you can create a special needs trust without worrying that you will needlessly tie up your loved one’s inheritance. Most special needs trusts take into account the possibility that the trust, for whatever reason, may not always be necessary, and they give the trustee power to terminate the trust if that is the best for the beneficiary.
Some people who aren’t disabled now may need assistance from SSI or Medicaid at some point because of a condition that is likely to get worse. In this situation, creating a special needs trust involves some guesswork. But if you think it’s more likely than not that a loved one will need government assistance for a significant length of time, it makes sense to set up a special needs trust now. In the trust, you can give the trustee the power to terminate the trust if it is not needed.
A loved one who receives Medicare or Social Security Disability Insurance (SSDI) may not need a special needs trust because these programs do not base eligibility on the amount of money or assets an applicant has. However, it's worth asking whether your loved one might someday qualify for, and benefit from, SSI or Medicaid. If the current SSDI payment is low, SSI may be a valuable way to supplement your loved one’s income. And Medicaid may be necessary to provide benefits not included in the Medicare program—for instance, long-term nursing home care.
Learn more about Social Security Disability and SSI and Medicaid.
You can also learn more about long-term care planning in Long-Term Care: How to Plan and Pay for It, by Joseph Matthews (Nolo).
People who are unlikely to be able to manage an inheritance on their own are good candidates for a special needs trust, even if you are fairly certain they ultimately won’t need SSI or Medicaid. Such trusts are often called “spendthrift” trusts when used to keep assets out of the hands of a beneficiary (and of his or her creditors) and in the firm control of a trustee. For example, someone with mild developmental disabilities, mild autism, attention deficit disorder, or bipolar syndrome might benefit from a trust that prevents reckless spending of inherited money even in the absence of a condition that typically falls under the definition of "disability. (Read more about Spendthrift Trusts.)
Another good reason to use a special needs trust is to prevent a loved one with a disability from being the victim of predators. There are many unscrupulous and dangerous people out there who will target a person with mental or physical disabilities if they believe the person has money. A special needs trust prevents a person with a disability from falling prey to these predators because the person with the disability does not have control over trust funds.
To learn more about special needs trusts, go to the Special Needs Trusts section of Nolo.com.
Excerpted from Special Needs Trusts, by Steven Elias and Kevin Urbatsch (Nolo).
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