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Special Needs Trusts

Special Needs Trusts
Many families are facing the problem of how to provide for a disabled relative without disqualifying that person from receiving government benefits. With proper medical care, children suffering from a variety of physical, developmental or mental disabilities can be expected to live a normal life expectancy and will outlive the parents by many years. Leaving a substantial inheritance to the disabled child is not a very good solution because the child may not have the ability to manage the money and the child will be immediately disqualified from receiving certain types of government benefits.

Attorney Ron Greves

There are two primary programs that are commonly involved: SUPPLEMENTAL SECURITY INCOME (SSI) and MEDICAID. Both of these programs are "means tested" which means that both assets and income are examined before any benefit can be paid.

MEDICAID pays medical expenses including doctor's bills, prescription medicine, durable medical goods, hospitalization, nursing home expenses and some dental. Not everything is covered and there are limitations and exclusions. SSI provides a monthly cash allowance, which is periodically adjusted. The benefit for 2007 is $637 per month.

The income eligibility rules are extremely complex and are not the same for both programs. For MEDICAID, there is a maximum which depends on the County in which you live. If you exceed the maximum, you are disqualified from receiving benefits for that month. For SSI, in general, if your income exceeds the monthly allowance, you are not considered disabled and are disqualified from receiving benefits. Also, receipt of any income can result in a reduction in the monthly benefit. SSI counts both earned income from employment, unearned income such as an annuity, and "in kind contributions". Food or shelter which is provided by the parents or others, is counted as "in kind" income and reduces the benefit.

Both programs have asset limits of $ 2,000 for a single individual. Not everything is counted and certain things like a house, car and personal belongings are exempt. If the asset limits are exceeded, the person is disqualified from both programs.

There are also "divestment" penalties in both programs. If assets are given away, the recipient will be disqualified from receiving benefits. Again, the rules are very complicated.

Leaving money or property to a disabled child will mean that the entire inheritance will have to be spent on paying for things that would otherwise have been covered by MEDICAID or SSI. The inheritance is wasted since the child will not receive any benefit from the parents' hard earned money.

The solution is creation of a Special Needs Trust. Rather than leaving property outright to a disabled child, you leave that share to a Trustee who manages the Trust for the benefit of the disabled person.

The Trustee is instructed to provide for the needs of the disabled child that are not otherwise being met by SSI or Medicaid. For example, the Trustee can buy clothing, cosmetics, furniture, computers and other electronic equipment. The Trustee can provide comfort and entertainment items such as vacation travel, cable TV, internet services, movie and concert tickets. The Trustee can also pay the salary of a care-giver and can pay medical, dental and optical expenses not covered under Medicaid.

There are any number of other possibilities. As long as you stay away from food and shelter expenses, none of this is counted as income and the child continues to receive full government benefits. You can make the child's life much more comfortable without causing the child to lose benefits.

Upon the death of the disabled child, the remaining Trust assets are paid over to anyone whom you chose, including your other children or grandchildren.

It is possible to set up a Special Needs Trust with the child's own property such as an inheritance, a personal injury settlement or the proceeds of a life insurance policy. However, the rules are very restrictive. You need to go to court for approval and the court may require the Trustee to post a bond and file annual accounts. Also, you have to make the State of Michigan the first beneficiary after death to the extent of any Medicaid payments made over the child's lifetime. These rules do not apply to a third party trust set up by a parent or grandparent with their own funds.


Dinning & Greve
Located in Roseville, Dinning & Greves, P.L.C., represents clients throughout Michigan, in cities including:
Eastpointe, St. Clair Shores, Warren, Sterling Heights, Clinton, Harrison, Macomb, Shelby and Washington Townships.
Our firm also represents clients in Oakland County, Wayne County, and Macomb County.

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