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Government Benefits & Special Needs Trusts

When planning one’s estate, an attorney must analyze whether or not there may be heirs who have special needs and rely on government assistance for support. Such government assistance programs involved in this type of planning are commonly known as Social Security Disability (“SSD”), Supplemental Security Income (“SSI”), Medicare and Medicaid. Below is a brief overview of the programs and a section that discusses how special needs planning can help protect said benefits.


Supplemental Security Income is a program that is strictly need-based, according to income and assets, and is funded by general fund taxes. SSI is called a “means-firmed program,” meaning it has nothing to do with work history, but strictly with financial need. To meet the SSI income requirements, you must have less than $2,000 in assets (or $3,000 for a couple) and a very limited income.

Disabled people who are eligible under the income requirements for SSI are also able to receive Medicaid in the state they reside in. Most people who qualify for SSI will also qualify for food stamps, and the amount an eligible person will receive is dependent on where they live and the amount of regular, monthly income they have. SSI benefits will begin on the first of the month when you first submit your application.


Social Security Disability Insurance is funded through payroll taxes. SSDI recipients are considered “insured” because they have worked for a certain number of years and have made contributions to the Social Security trust fund in the form of FICA Social Security taxes. SSDI candidates must be younger than 65 and have earned a certain number of “work credits.” There are no asset restrictions on SSD as there are on SSI.


Medicare is a federal health insurance program for people who are 65 and older, are under 65 with certain disabilities, or are of any age but have End Stage Renal Disease. There are four parts to Medicare (A-D) that cover medical issues such as doctor visits, prescription drugs, inpatient care, and outpatient care, inter alia. The cost depends on the coverage chosen and could include premiums, deductibles, copays and coinsurance.

Medicaid & CHIP

Medicaid and CHIP provide health coverage to nearly 60 million Americans, including children, pregnant women, parents, seniors and individuals with disabilities. In order to participate in Medicaid, federal law requires states to cover certain population groups (mandatory eligibility groups) and gives them the flexibility to cover other population groups (optional eligibility groups). States set individual eligibility criteria within federal minimum standards. States can apply to CMS for a waiver of federal law to expand health coverage beyond these groups.

Many states have expanded coverage, particularly for children, above the federal minimums. For many eligibility groups, income is calculated in relation to a percentage of the Federal Poverty Level (FPL). For example, 100% of the FPL for a family of four is $23,550 in 2013. The Federal Poverty Level is updated annually. For other groups, income standards are based on income or other non-financial criteria standards for other programs, such as the Supplemental Security Income (SSI) program.

Some common definitions are as follows:

Treatment of Trusts: When an individual, their spouse, or anyone acting on the individual’s behalf establishes a trust using at least some of the individual’s funds, that trust can be considered available to the individual for purposes of determining eligibility for Medicaid.

Transfers of Assets for Less Than Fair Market Value: This practice is prohibited for purposes of establishing Medicaid eligibility. Applies when assets are transferred, sold, or gifted for less than they are worth by individuals in long-term care facilities or receiving home and community-based waiver services, by their spouses, or by someone else acting on their behalf.

Estate Recovery: State Medicaid programs must recover from a Medicaid enrollee’s estate the cost of certain benefits paid on behalf of the enrollee, including nursing facility services, home and community-based services, and related hospital and prescription drug services. State Medicaid programs may recover for other Medicaid benefits, except for Medicare cost-sharing benefits paid on behalf of Medicare Savings Program beneficiaries.

Third Party Liability: Third Party Liability (TPL) refers to third parties who have a legal obligation to pay for part or all of the cost of medical services provided to a Medicaid beneficiary. Examples are other programs such as Medicare, or other health insurance the individual may have that covers at least some of the cost of the medical service. If a third party has such an obligation, Medicaid will only pay for that portion.

Special Needs Planning

When planning for someone with the need to protect government benefits, it is often times best to draft a separate trust for the person with special needs. However, special needs trusts can be created and funded through the court process if the decedent left only a will, for example. Often times, a special needs trust will avoid probate court intervention if properly drafted, disputes do not arise among heirs, and assets are properly accounted.

It is important to structure any such special needs trust so as not to disqualify the Beneficiary from public benefits such as Social Security Income and Medicaid because of their interest in the trust. Below are certain types of trusts that can be drafted for the special needs beneficiary:

  • 1st Party Trust: is a trust funded by the property of the person with special needs, i.e. personal injury or divorce settlements. The method used to accomplish this is by filing a formal petition with the probate court. A trust protector or Trustee can be appointed to oversee trust administration, with or without court supervision.
  • 3rd Party Trust: is a trust funded by the property of someone other than the beneficiary, i.e. parent for child. Due to the likelihood that this type of trust will be drafted by an attorney outside of court the process, it is critical to properly draft a trust of this type.
  • Revocable Trust: is flexible, the person who creates the trust (the “settlor”) can amend or revoke the trust at any point during his or her life, or both the husband and wife if the trust has two trustees.
  • Irrevocable Trust: is inflexible because it cannot be altered or dissolved after its creation without the permission of the trustee and the beneficiary.
  • Discretionary Trust: is a trust which the beneficiary does not have a fixed interest in the trust funds, funds are paid out but the Trustee for a specified needs in the trust.

A well-drafted trust maximizes the benefit to the child while minimizing tax effects. It is important that the trusts address all concerns and it is drafted to best meet the needs of the Beneficiary and addresses all the concerns of the Settlor of the trust. One specific type of trust may not be ideal for every situation and a careful consideration of the current facts and future scenarios should play a part in decision making.

In addition to choosing what kind of a trust would be more beneficial to one’s specific situation for tax purposes, it is important to create other legal documents that cover the day to day medical and financial issues of a special needs child, whether adult or minor. Planning questions arise such as:

  • Who do you want to appoint as Medical Power of Attorney for the child with special needs? This person will make medical decisions on behalf of the disabled child.
  • Who do you want to appoint as Financial Power of Attorney for the child with special needs? This person will make all financial decisions concerning your special needs child.
  • Where will your special needs child live once you have passed? Should your child live in a home or facility?
  • Who will take care of your child on a daily basis? Does your child need 24/7 care? Will their health condition deteriorate?

In addition to drafting the Trust, Medical Power of Attorney, and Financial Power of Attorney, parents can write a Letter of Intent. Parents can use this as an opportunity to share information about their child and provide direction and guidance to the trustee after they have died. The important legal result of a Letter of Intent is to remove all ambiguity as to the methods the parents are taking to plan for their child(ren).

Written by Daniel Marchese & Arsiola Vasha


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