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A Special Needs Trust is an essential part of planning for parents who have a child with disabilities that must be drafted with precision and in compliance with the law. Individuals living with disabilities are often entitled to government benefits such as Supplemental Security Income (SSI) and Medicaid. These are means-based programs meaning that the individual receiving such benefits must have limited assets in order to be eligible to receive these benefits. The threshold is generally $2,000 or less. Because of this, it used to be the custom for parents to effectively disinherit their disabled children for fear that if they left funds to their children upon their death, they would lose their extremely valuable government entitlements. However, this is no longer the case.
In 1993, in an effort to afford equal protection under the law to individuals with disabilities, the Federal Congress passed a law that is known as OBRA 93. That law created an exception to the above scenario. It is now permissible for an individual receiving government entitlements due to disability that are means based to hold money in what is known as a Special Needs or Supplemental Benefits Trust. The money being held in trust may be used to enhance the individual’s quality of life. For example, the money can be used to purchase computer equipment, an accessible van, to retain a private care manager, for vacations and the like. People can fund these trusts through their wills or through lifetime gifts. These trusts are also often a repository for personal injury/medical malpractice settlements.
It is also important to note that due to changes in certain waiver and housing programs, consumers who previously did not need or intend to qualify for Medicaid or other means tested programs are now being compelled to qualify (i.e. the community care waiver). This means that special needs trusts may be more important than ever in ensuring the individual has a properly drafted trust while at the same time qualifying for such entitlements.