How to Protect Your Inheritance with a Special Needs Trust

If you receive income-based government benefits and an inheritance is coming your way, you need to consider how to protect your inheritance. Why? Because receiving income, such as an inheritance, can jeopardize your eligibility for certain benefits. For instance, in order to be eligible for Supplemental Security Income or SSI, you cannot have more than $2,000 in assets. In other words, you must have very limited resources. Receiving an inheritance, depending on the amount, could make you ineligible for SSI or Medicaid. You need to protect that income by transferring the funds to a Special Needs Trust.

Who needs a special needs trust?

Not everyone looking to receive an inheritance will need a Special Needs Trust. It depends on the type of benefits you are receiving. Here are some examples of benefit programs that would require a Special Needs Trust, in order to maintain eligibility:

SSI
Medicaid
Medicaid Waiver Programs
Section 8 Housing
Supplemental Nutrition Assistance Program (Food Stamps)
Residential Housing through the Division of Developmental Disabilities (DDD)

Eligibility for other government benefits that are not considered “means-tested” programs, like SSDI, Medicare, and Children’s Health Insurance Program (CHIP) is not affected. That is because eligibility is not dependent on income. Many clients confuse SSI with SSDI and Medicare with Medicaid. To be sure that a Special Needs Trust is what you require, discuss your situation with an estate planning attorney.

Others who may need a Special Needs Trust

Some disabled individuals, who are still capable of earning a living, may not be eligibile for government assistance. However, a Special Needs Trust is commonly used for those individuals with permanent or severely disabling conditions such as blindness, paralysis or development disabilities. These people generally receive government benefits automatically.

For those who may be unable to manage an inheritance prudently, a Special Needs Trust may be necessary. Trusts created for this purpose are often called “spendthrift” trusts, because they are used to keep assets out of the hands of a beneficiary but, instead, under the control of a trustee. For example, someone with mild developmental disabilities might benefit from this type of trust, because it can prevent reckless spending.

What type of special needs trust do I need?

If the amount of the inheritance exceeds $100,000, usually it is best to establish a standalone Special Needs Trust for that particular heir. In some cases, using the services of a professional trustee, with experience navigating the public assistance arena, and who understands the relevant tax issues, is a good idea. If the amount of the inheritance is not that large, a Pooled Trust might be the best option. With a pooled trust, your funds are combined with the funds of other beneficiaries, for investment and management purposes. A pooled trust allows for better investment options because the funds are increased exponentially. Don’t worry. A sub-account is maintained for each beneficiary, who regularly receives reports on deposits and disbursements.

If you have questions regarding trusts and inheritances, or any other estate planning needs, please contact Sexton, Bailey Attorneys, PA online, or by calling us at (479) 443-0062.