If you have a disabled relative, you may be strongly considering using your estate plan to improve the quality of his or her life. Because you do not want a cash gift to interfere with the government benefits your loved one currently receives, you may decide to form a special needs trust.
Means-tested government programs, such as Medicaid and Supplemental Security Income, typically pay for ordinary living expenses. Rent, groceries, utilities and basic medical care usually fall squarely within the purview of these programs. Funds from the special needs trust you establish may not usually pay for these same expenses.
Needs-based government programs
To qualify for needs-based government help, your relative must have limited income. Funds in the special needs trust are not usually income for purposes of qualifying for financial assistance. If funds from the trust pay for ordinary living expenses, though, that may not be true. That is, your loved one may lose public benefits if he or she uses special needs trust funds on regular living expenses.
While ordinary living expenses are usually off-limits, there is a host of supplemental expenses the special needs trust may cover. For example, your loved one can probably use the trust for out-of-pocket medical care and copays. Paying recreational, travel or entertainment expenses with funds from the special needs trust is also usually ok.
Even better, your loved one may use funds from the trust to pay for home modifications, wheelchairs or prosthetic devices. Put simply, as long as your relative accesses the trust for supplemental expenses that make life better, he or she probably does not have to worry about losing public assistance funds.