If you’re a parent of a child with special needs and you’re wondering whether or not a special needs trust is something that you should create to handle future income your child might receive or assets that your child might receive, it really depends upon the type of asset you’re trying to protect and the types of benefits that your child may or may not be on.
A special needs trust is only needed to preserve certain types of government benefits. To simplify it, there are four categories of public benefits:
- SSI – Supplemental Security Income
- SSDI – Social Security Disability Insurance
These all sound alike, but they all have very different rules concerning eligibility.
To unpack it a little bit, SSI, Supplemental Security Income, is a cash benefit from the federal government for individuals who have never had a work history of their own and who become totally and permanently disabled, either from birth or at some point later on in life. And it’s a cash benefit, a monthly benefit, that comes into the household.
SSDI, Social Security Disability Insurance, is tied to work history. If you pay into the system through Social Security, through social security payments, and you become disabled, then you’re entitled to receive money back on a monthly basis from SSDI.
Medicare also is tied to work history, so if someone paid into the system and you become disabled or turn 65, you’re entitled to be medically insured through the Medicare program. Medicaid, however, is not tied to work history. It has financial eligibility criteria and medical eligibility criteria and an individual has to be disabled but they can only have so much in income and so much in assets to be eligible for a Medicaid program.
Special needs trusts are really only needed to preserve Medicaid, which has a financial eligibility criteria and SSI, which has a financial eligibility criteria. If the child of that parent is going to be on Medicare or SSDI, a special needs trust may not be the right vehicle to use to plan for their inheritance.