A special needs trust is a unique estate planning tool that many people are unaware of, even though they may know that people who are receiving government benefits could lose those benefits if they ever receive an inheritance. If you have a family member with special needs, it is important to talk with a trusted lawyer about drafting a special needs trust.
To understand why benefits could be lost because of an inheritance, you must understand the difference between Social Security Disability Income and Supplemental Security Income. Both of these programs are overseen by the U.S. The Social Security Administration, but they are not the same.
Social Security Disability Income (SSDI)
Social security disability income is a program that provides people with income if they cannot work for more than 12 months because of a disability. In order to qualify, they must be under 65 years of age and employed for at least five of the last ten years.
SSDI is income for those who were no longer able to work because of a disability. It is not based upon the means test which means they could have assets such as retirement accounts, bank accounts, investments, a home, and so forth, and can still receive these benefits.
Supplemental Security Income (SSI)
Supplemental security income is benefits for disabled or blind people. These benefits are based upon a means test; therefore, anyone who makes over $2,000 will be disqualified from SSI. A person may receive SSI if they have a home and reside there; however, their benefits may be reduced.
How Social Security Benefits Could Be Affected By an Inheritance
For inheritance purposes, you don’t need to be concerned about a special needs trust for a person who is getting SSDI benefits. In general, an inheritance won’t affect their benefits. However, it would likely affect a person getting SSI. In some cases, they could lose all of their benefits.
To avoid this, you should ask a trust lawyer to create a special needs trust. This is a trust that provides the person with an inheritance but does not disqualify them from their SSI payments.
In order to avoid this result for SSI recipients, the Special Needs Trust may be utilized to provide the person with the inheritance while not disqualifying them from the SSI payments. In general, you would first create a revocable living trust that will hold your assets during your lifetime. If one of your named beneficiaries are getting SSI payments, they would not receive their inheritance directly. Rather, a trustee will manage their inheritance through a special needs trust, which is a sub-trust of your revocable trust.
A special needs trust may provide distributions to the beneficiary to enhance their life; however, it should not provide anything for basic living expenses as this is what the SSI payments are for. Vacations, books, classes, and other non-essential items can be distributed to the beneficiary through a special needs trust. Any funds remaining in the special needs trust after their death can then be distributed to another beneficiary.
Call a Trust Lawyer to Learn More
If you are interested in knowing more about a special needs trust, please call an estate planning attorney, for more information.
Call 434-817-3100 or complete a Case Evaluation form
