Millions of baby boomers are coming of age. It has been well documented, particularly in recent years, that these individuals will soon have a significant impact upon our medical and long-term care infrastructure. Often overlooked, however, is the fact that baby boomers are also parents and caregivers to millions of non-elderly disabled children. How will the parents’ aging impact the care and wellbeing of their children?
It appears little has been done to educate the aging baby boomers as to what steps should be taken to provide for the future care of their disabled children. Special Needs Trusts (SNT), also known as Supplemental Needs Trusts, play an important role in the planning for a disabled child. They are generally considered to be the legal centerpiece of a plan for a disabled person.
The purpose of a SNT is to provide for the preservation of funds that are permitted to be available to a disabled person without affecting his or her eligibility for government benefits such as Medicaid and Supplemental Security Income (SSI). Depending on the benefits the disabled person is receiving, a SNT can be utilized for food, clothing, electronics, cell phone and other necessities.
The following gives a brief overview of two common types of SNTs – the third party SNT and the self-settled SNT:
Third Party SNT
A third party SNT is a trust created and funded by someone other than the disabled beneficiary (generally a parent, grandparent or sibling). The source of funds for a third party SNT should never be from the disabled person. Any individual can fund this type of trust without affecting the beneficiary’s entitlement to government benefits. The funding of a third party SNT by a parent also has Medicaid planning benefits for the grantor since the transfer is considered an exempt transfer. Thus no period of ineligibility is created. A third party SNT does not require payback to the government for benefits paid upon the death of the disabled person.
Self-Settled SNT or First Party SNT
Self-settled trusts are either funded with a disabled beneficiary’s own funds or funds to which he or she is entitled (such as personal injury award or inheritance). In order for the disabled beneficiary to establish and fund a self-settled SNT, he or she must be disabled and under the age of 65. Upon the death of the disabled beneficiary, all remaining trust principal and accumulated income must be paid back to Medicaid as reimbursement for all benefits paid during his or her lifetime. Any funds left over may be paid to the named beneficiary of the trust.
A second post will outline two additional options, the pooled self-settled SNT (managed by a non-profit association) and the sole benefits trust (a special type of SNT that has been gaining in popularity).