Families considering a special needs trust must understand the qualification process to preserve their loved ones’ access to the benefits programs they rely on. The process generally involves establishing the beneficiary’s disability status, drafting a trust document with the appropriate provisions, submitting the trust for agency review, and carefully administering it over time.
Step 1: Confirm the Beneficiary's Disability Status
The first step is determining whether the beneficiary already has a disability determination that can be used during the benefits review process. If they are already receiving Supplemental Security Income or Social Security Disability Insurance payments, the Social Security Administration will generally have a disability determination on record.
If no determination has been made, additional steps may be necessary to establish that the beneficiary meets the applicable disability requirements. This occurs through an application for disability-based benefits. Other benefits programs may have a separate disability review process.
However, don’t wait for this determination before speaking with an estate planning attorney about a special needs trust. Identifying what is already on record and what may still be needed simply helps clarify the requirements that must be addressed as the trust moves forward. If additional steps are necessary, working with an experienced attorney can help you avoid any pitfalls.
Step 2: Draft the Trust With the Right Protections
Once you understand the beneficiary’s disability status and the benefits involved, the next step is to set up a special needs trust that meets the requirements of the benefits programs. The exact provisions will depend on the type of special needs trust, who is funding it, and the benefits you are trying to preserve.
Important requirements may include:
- Sole-benefit provisions: The trust must be established and used for the beneficiary’s sole benefit during their lifetime.
- Medicaid payback language: The trust must address reimbursement to the applicable state Medicaid program or programs from assets remaining at the beneficiary’s death.
- Carefully structured access and distributions: The trust should limit the beneficiary’s ability to directly control or access trust assets. Distribution provisions should also account for how different payments may affect the beneficiary’s benefits.
Complying with the guidelines of the Social Security Administration or the state Medicaid agency from the outset can help avoid any problems that might otherwise surface only after the trust has been funded and submitted for review.
“Create a letter of intent that explains your loved one’s routines, preferences, medical care, and long-term goals.”
Step 3: Submit the Trust for Benefits Review
Once the trust has been properly drafted, the next step is providing the agencies administering the applicable benefits programs with the information they need to evaluate the trust. The review process will depend on which benefits the beneficiary receives and may also vary by state.
For SSI, the Social Security Administration may request a copy of the trust and any related documents as part of an application or eligibility review. The agency then evaluates the trust under its Program Operations Manual System guidelines, commonly known as POMS, to determine how the trust and its assets should be treated for SSI purposes.
Medicaid reviews are handled at the state level, so the process varies depending on where the beneficiary lives. The state Medicaid agency may request the trust and supporting documents when determining or reviewing the beneficiary’s eligibility.
Because SSI and Medicaid have different review processes, a determination under one program does not necessarily determine how the trust will be treated under the other.
Step 4: Respond to Requests for Additional Documentation
Submitting the special needs trust does not always result in an immediate determination. A reviewer may need additional information to understand how the trust was created, funded, or administered, particularly when the document contains unclear provisions or the beneficiary’s circumstances require further documentation.
Depending on the issue, the agency may request the following:
- Additional trust documents: Amendments, court orders, joinder agreements, or other documents may be necessary to evaluate the complete arrangement.
- Funding information: Records may be needed to determine whose assets funded the trust and when those assets were transferred.
- Establishment information: The reviewer may need documentation showing who established the trust and whether that person had the authority required under the applicable rules.
- Proof of age or disability status: A reviewer may request verification of the beneficiary’s age, in the case of a first-party special needs trust, or documentation demonstrating that the beneficiary meets the applicable disability requirements.
Questions during the review do not necessarily mean the trust will be rejected. They do, however, make accurate records and careful drafting especially important.
Step 5: Receive a Determination
After reviewing the trust and any requested documentation, the agency determines how to treat the trust when evaluating the beneficiary’s eligibility. A review may result in:
- Favorable determination: The agency determines that the trust meets the applicable requirements. The trust assets generally will not be counted toward the beneficiary’s resource limit when determining eligibility for the benefit being reviewed.
- Unfavorable determination: The agency determines that some or all of the trust assets must be counted when evaluating the beneficiary’s eligibility. This can happen when the trust fails to meet an applicable requirement or grants the beneficiary too much control over the trust assets.
An unfavorable determination does not necessarily end the matter. Depending on the problem and applicable law, it may be possible to correct trust language, provide additional documentation, pursue available administrative appeal rights, or seek judicial modification or reformation of the trust. The appropriate response depends on why the trust failed the review.
Step 6: Maintain Qualification Through Periodic Reviews
A favorable determination is an important step, but the trustee’s responsibilities do not end there. SSI and Medicaid eligibility may be reviewed again, and how the trust is managed can affect the beneficiary’s benefits even when the trust itself was properly drafted.
To help avoid problems during future reviews, trustees should do the following:
- Keep thorough records: Maintain copies of the trust, amendments, account records, court orders, and documentation for distributions, including the payment amount, purpose, and recipient.
- Consider how distributions affect benefits: Direct cash payments to an SSI recipient may count as income, while certain living-expense payments may reduce the beneficiary’s SSI payment. Reviewing the potential effect before making a distribution can help prevent unintended consequences.
- Pay attention to trust changes: A change in the trustee, trust terms, funding, or the beneficiary’s circumstances may affect how the trust or its distributions are evaluated.
- Stay current on benefit eligibility rules: SSI, Medicaid, and other benefit requirements can change over time. Trustees should stay informed about current guidance and seek professional advice when they are unsure how a new rule may affect the trust or beneficiary.
Maintaining a special needs trust is an ongoing responsibility. Careful administration can help the trust continue to support the beneficiary while preserving eligibility for the benefits it was designed to protect.
“Consider coordinating a Special Needs Trust with an ABLE account to provide greater flexibility for qualified expenses while helping preserve eligibility for certain means-tested benefits.”
Work With an Attorney Who Understands Special Needs Planning
A special needs trust is intended to provide additional support for your loved one without unnecessarily jeopardizing access to important benefits. The trust must reflect the beneficiary’s circumstances, account for the benefits they receive, and provide clear guidance for the person who will manage it.
Evans & Davis can explain the requirements that apply to your loved one’s situation and devise a plan designed around their long-term needs. Our attorneys can also help trustees understand their responsibilities and navigate questions that may arise as the trust is administered over time.
Call 866-708-2335 or contact us online to discuss how a special needs trust can support your loved one.
