WARNING: Gifting to a Special Needs Person Can Have Negative Consequences
YOU DO NOT MAKE GIFTS TO A SPECIAL NEEDS FAMILY MEMBER OR FRIEND AND THIS IS WHY:
Parents, grandparents, siblings, aunts, uncles and friends often want to help provide for a special needs family member or friend and often revise their Wills to provide outright monetary gifts to the special needs person, or they may establish a trust for his/her benefit. They will be doing damage to the special needs person’s right to government benefits unless they provide gifts in the correct way.
Eligibility for SSI and Medicaid is predicated on need. Outright gifts are treated as gifts of income in the month received. In 2016, an individual cannot receive more than $733 in income in a month. If anything is left, the balance is treated as a resource.
Since the resource can be used to support the individual, he or she will be ineligible to receive benefits until the balance is spent. A new application must then be made for benefits. Depending on the amount involved, this can result in disqualification for the first month and numerous months thereafter.
For many people, running out of money is not as important as losing Medicaid benefits. If a trust is created for the benefit of the special needs person, the trust must NOT provide for the individual’s support or it too will result in a disqualification for benefits.
PLAN AND GIFT TO THE SPECIAL NEEDS PERSON THE RIGHT WAY BY ESTABLISHING A SUPPLEMENTAL SPECIAL NEEDS TRUST
The family (or friends) should establish a supplemental special needs trust, also known as a third party special needs trust, or SNT. The trust will be drafted so that it will not provide for support, which will then allow the special needs person to continue qualifying for SSI and Medicaid. If the family establishes the trust, other family members and friends can make donations to it.
An SNT is not a support trust. It supplements the needs of the individual. The individual pays for rent and food out of his/her SSI benefits. Distributions from the SNT can provide for everything else, including:
- Unreimbursed medications or other medical expenses;
- A car;
- Special equipment; or
- Modifying a home for personal use.
One of the more significant benefits is that, unlike a “first” party SNT (created with the special needs person’s own money), upon the death of the special needs person, the remaining assets are not paid to Medicaid for services provided, but are distributed to the beneficiaries named in the SNT. This can be an encouragement for family and friends to make gifts.