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Relevant Practice

• Trusts

Trusts are an important planning tool for persons who cannot handle their own financial affairs for whatever reason, including mental or physical disability. A special needs trust ("SNT") is a trust designed to supplement benefits available to disabled persons under governmental assistance programs to improve upon their quality of life without jeopardizing their eligibility for governmental benefits.

Social Security Disability Income (SSDI), Medicare, Supplemental Security Income (SSI) and Medicaid are the primary sources of governmental benefits for the disabled. Eligibility for SSDI and Medicare is not dependent upon the amount of assets a disabled person owns. However, SSI and Medicaid are financial need-based programs. SSI provides direct cash benefits to a disabled person or his/her representative payee for food, shelter and clothing. Medicaid provides medical assistance to disabled persons for doctor and hospital bills. To qualify for SSI and Medicaid, the applicant must have limited countable monthly income and no more than $2,000 of countable assets.

Countable assets include cash or other liquid assets, as well as any real estate or other property (such as stocks, bonds or CDs) which can be converted to cash and thus be used to pay for the person's food, shelter, clothing or medical expenses. Certain assets, such as a family home and household goods and personal effects, are not counted in determining SSI and Medicaid eligibility. 

The receipt of a personal injury award or an inheritance can jeopardize initial eligibility or continuing eligibility for SSI and Medicaid. Alternatively, disabled persons on the waiting list for community-based services under Louisiana's Medicaid Waiver Program may find themselves over the $2,000 asset limit when a slot becomes available. However, a properly drafted SNT can be used to preserve these benefits despite assets in excess of $2,000.

Generally, there are two types of SNTs for disabled persons. The first type is established for a disabled person with funds of someone other than the disabled person or his/her spouse. This is known as a "third party" SNT. A typical example is a SNT created under a parent's or grandparent's Will for the benefit of a child or grandchild to hold an inheritance. The second type of SNT is established with funds already owned by the disabled person or his/her spouse. This is known as a "self-settled" SNT. A typical example is a SNT funded with an inheritance already received, a personal injury award or cash or other assets already in the disabled person's name.

Both types of SNTs have common characteristics. They usually state that the purpose of the trust is to supplement rather than supplant those benefits available under governmental assistance programs to improve upon the beneficiary's quality of life by providing more sophisticated medical, rehabilitative, recreational, cultural or educational aid not provided by Medicaid or SSI. The Trustee may be parents, family members, the legal guardian or a bank or other institution qualified to exercise trust powers in Louisiana. The Trustee is given wide discretion as to timing and amounts of distributions after considering all other funds available to meet the disabled person's needs, including governmental benefits such as Medicaid and SSI. The Trustee is authorized to make expenditures on the disabled person's behalf rather than distributing monies directly to the disabled person. The Trustee is specifically prohibited from making any distributions which would jeopardize the disabled person's eligibility for governmental benefits.

A self-settled trust created with the disabled person's own funds generally is counted for Medicaid and SSI eligibility purposes, unless the trust meets one of the exceptions under federal law. One exception is the "Under Age 65 SNT." To qualify, the SNT must meet the following requirements:

Medicaid and SSI usually do not notify a disabled person when denying eligibility or terminating benefits because of excess countable resources that such benefits may be preserved through the use of a trust. Likewise, many parents are unaware that they can leave assets to a disabled child when they die in a trust without jeopardizing the child's governmental benefits. However, not just any trust will do. The trust must be drafted by a lawyer who is familiar with SNTs, the special problems of the disabled beneficiary, and the often complex and changing rules under governmental assistance programs.