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How does a special needs trust affect public benefits?

On Behalf of | Feb 2, 2021 | Estate Planning |

Texans with disabilities are often eligible for public benefits, such as Medicaid or Supplemental Security Income. To qualify for these and other programs, though, a person must have limited income. Using your estate plan to gift funds directly to a relative who has a disability may cause him or her to lose access to vital public benefits.

A special needs trust may strike the right balance. With this trust, your loved one has access to funds to use on supplemental expenses while continuing to be eligible for means-tested public programs.

What are supplemental expenses?

The meager funds public programs provide to your relative are likely to cover only basic medical and living expenses.

To continue to qualify for government benefits, your loved one must not use funds from the special needs trust to pay for the same expenses that public programs cover. That is, disbursements must only go to supplemental expenses.

The list of acceptable supplemental expenses is long, likely including the following:

  • Uncovered medical expenses
  • Housing improvements
  • Medical devices
  • Vacation and travel costs
  • Vocational training and hobby expenses

How do you avoid an error?

If your loved one uses disbursements from the special needs trust on impermissible expenses, he or she may lose public benefits. Fortunately, it is probably more difficult to make an error than you may think.

When you establish the trust, you designate a trustee to manage and oversee it. This person, who should have a working knowledge of public programs, also approves disbursements from the trust.

Ultimately, if a disbursement is likely to affect your loved one’s eligibility for public benefits, you can trust the trustee to deny it.