08 Nov What Can a Special Needs Trust Pay For?
If you are supporting someone with a disability, it can be difficult to ensure their financial security while still preserving their eligibility for government benefits. That’s where a Special Needs Trust (SNT) comes in. These irrevocable trusts are designed to provide for the unique needs and expenses of the beneficiary while maintaining their qualifications for public assistance. In this post, we explain how a Special Needs Trust can be beneficial, what it can (and can’t) pay for, and how to set one up.
Four Reasons to Set Up a Special Needs Trust
1. Preservation of Government Benefits
If you leave an inheritance to someone with a disability, it is considered part of their income and it could disqualify them from the government benefits they rely on. As a result, your beneficiary may have to refuse the inheritance. However, setting up a Special Needs Trust can preserve their eligibility for Supplemental Security Income (SSI), Social Security, Medicare, Medicaid, and other programs.
With a Special Needs Trust, your beneficiary can keep their inheritance and remain eligible for government assistance. Because the assets in a SNT belong to the trust, they do not count toward the beneficiary’s income. However, when it comes to trusts and SSI benefits there are certain restrictions—we go into more detail on these limitations later in this post.
2. Supplemental Support
While government assistance programs provide a foundational level of care, they often fall short when it comes to covering expenses that enhance a person’s quality of life. Special Needs Trusts can bridge this gap by covering travel, education, entertainment, and other living expenses. This supplemental support can significantly improve your beneficiary’s wellbeing and provide them with more opportunities for a richer life.
3. Professional Management
Every SNT is managed by a trustee who is responsible for ensuring that the trust operates effectively. They oversee the allocation, investment, and distribution of funds, all while adhering to the specific terms and conditions laid out in the trust document. Professional management ensures that the funds will be used in the best interest of the beneficiary and in compliance with government regulations.
4. Peace of Mind
Setting up a Special Needs Trust provides peace of mind to families who want to know that their loved one’s quality of life is protected. Special Needs Trusts can also empower individuals with disabilities to continue to live fulfilling lives without financial worry, and with access to the support they need to thrive.
What Can a Special Needs Trust Pay For?
Special Needs Trusts can pay for a long list of expenses, from crucial medical care to life-enriching recreation. Here are some of the many things that an SNT can pay for without affecting the beneficiary’s eligibility for government assistance.
SNTs can pay for any medical expenses not covered by insurance or public assistance programs. Setting up a SNT can provide your loved one with:
- Dental care
- Vision care
- Hearing aids
- Physical therapy
- Mental health services
- Medical equipment and supplies
- Prescription medications
- In-home nursing care
The funds from a Special Needs Trust can also be used for educational expenses, such as tuition, books, supplies, and fees. This allowance can encompass everything from secondary education to higher education, vocational training, and even tutoring.
Vacation and Travel
SNTs allow the beneficiary to live life to the fullest by covering their vacation and travel expenses. The funds can be used to pay for lodging, airfare, bus tickets, rideshare expenses and more.
Recreation and Entertainment
An SNT can also enhance the beneficiary’s quality of life by covering recreation and entertainment expenses. This may include hobby expenses, membership fees for clubs or organizations, and tickets to events or performances.
SNTs can be used to pay the beneficiary’s insurance premiums, including health, life, and liability. This provision safeguards the beneficiary’s future and provides their family with peace of mind.
Special Needs Trusts can even be used to purchase and maintain vehicles. This includes vehicles that have been adapted to accommodate the beneficiary’s disability. SNTs can also help cover vehicle insurance costs.
From leisure to communication, electronics are essential in today’s world. SNTs can be used to cover the costs of purchasing computers, smart phones, tablets, televisions, gaming consoles, and their related accessories.
Special Needs Trusts and Government Benefits
Legally, a Special Needs Trust can be used to pay for groceries, utilities, housing, and the other costs of food and shelter. However, doing so might jeopardize the beneficiary’s eligibility for government benefits.
Supplemental Security Income (SSI) is designed to help cover the cost of clothing, shelter, food, and other basic needs for qualified individuals. So if the trustee uses the trust funds to pay for the beneficiary’s basic needs, those amounts will be deducted from their SSI grant.
For instance, if the beneficiary spends $200 per month on food using SNT funds, then $200 will be deducted from the SSI benefits. However, there is a cap—as of 2023, a maximum of $324.66 can be deducted from an SSI check for money spent on food or shelter.
Preventing SSI Benefit Deductions
If you’re concerned about your beneficiary losing their SSI benefits, then the SNT should not be used to pay for the items in the following list.
- Restaurant meals
- Fast food
- Mortgage payments
- Condo/HOA fees
- Property taxes
- Utilities such as water, gas, and electricity
When Should You Use a Special Needs Trust Pay for Housing?
Sometimes, using the funds from a SNT is the best way to cover housing costs, even with SSI benefits. It all depends on the monthly cost of the beneficiary’s basic needs, how much they earn from SSI, and the amount of funds they receive from the trust.
For example, say the beneficiary earns $914/month in SSI benefits (the maximum in 2023), and their rent is $2,000/month. In this case, using funds from the SNT to pay the full rent leaves them with $589.34 in SSI benefits each month, which could make the deduction worthwhile, depending on their expenses. But if they only receive $500 from SSI, then taking a deduction would not be worth it.
Who Can Set Up an SNT?
Anyone can set up a Special Needs Trust on behalf of a disabled person, whether they are related to that person or not. However, the trust must be created before the beneficiary turns 65 years old. People who have a disability can also establish an SNT for themselves, thanks to the “Special Needs Trust Fairness Act.” Whether you’re interested in setting up a Special Needs Trust for yourself or for a loved one, it’s important to work with an estate planning professional to ensure the trust is successful.
Special Needs Planning in Scottsdale, Arizona
A Special Needs Trust can help preserve the beneficiary’s eligibility for government benefits, but only if set up correctly. The estate planning experts at Phelps LaClair have been helping Arizona families create and manage successful Special Needs Trusts for over 40 years. Give us a call at 480-892-2488 to schedule a free consultation.