If you have a disabled or special needs individual in your life, you want the best for their future. With proper planning, disabled individuals can benefit from the formation of a qualified disability trust. This type of trust, also called a Special Needs Trust, or 3rd Party Trust, provides additional income while allowing for governmental benefits for their lifetime. A Qualified Disability Trust can help you provide for the future of your special needs or disabled family member.
Government Benefits Form the Basis for Care
Our governments in the US offer helpful programs for the disabled including:
- North Carolina Medicaid
- Federal Supplemental Security income
These government benefits are need-based, meaning that the disabled person’s income, assets, and other resources must meet the requirements for low income. The problem with just giving money to a disabled or special needs person is that it can disqualify them from the government benefits they depend on for their daily life.
For example, Medicaid provides these resources to disabled individuals:
- Health insurance
- Personal Care Services (PCS)
- Medical Equipment
- Other Home Health Services
- In-home care under the Community Alternatives Program (CAP)
Supplemental Security Income also provides crucial benefits including cash for basic needs including:
You can see why qualifying for these programs can help a disabled person live their life. The problem is that the government programs only cover the bare minimum. There is no extra allowance or provisions for what a special needs or disabled person might want.
QDT= Benefits + Gift Income
When you open a Qualified Disability Trust, the disabled person does not own the QDT. A trustee that you appoint manages the distributions. Because the disabled person doesn’t own the QDT, the money or assets in the trust do not count against them for eligibility in government programs.
With a QDT, a special needs person can receive government benefits without the worry of losing eligibility. A QDT can distribute money or gifts every month, every 2 months, or however often you write in the trust. Because the trustee only gives assets that will not disqualify the special needs individual from benefits, they can enjoy the best of both worlds.
The Way Things Were vs. Now
In the past, parents of special needs adults had them live at home and cared for them at home. One parent was often always home with the disabled individual. That parent lost possible income taking care of the child 24/7, even as an adult. Parents struggled and could not save for retirement or do things on their own because their life revolved around the special needs adult.
Times have changed, and it is now possible for special needs or disabled individuals to receive the benefits they need, such as home health services, or even live on their own or in a facility or group home using government benefits.
Setting up and funding a QDT gives a special needs person a chance to get needs met and also receive necessary spending money from the trust. Often, special needs individuals use this extra income for:
- Recreational activities such as clubs or sports
- Career training or hobby development
- Computers, phones, etc.
- Needed services: accountants, attorneys, etc
- Eating out with friends
- Pets and vet bills
A Partnership Between You and the Government
If you and your special needs individual are already low-income without any savings, you can benefit from the government programs. However, families who can save for their special needs child’s future need to protect that money by placing it in a QDT.
Even families with excess personal resources can benefit from government programs. A QDT keeps money safe while not counting it against the special needs family member.
Once the money is in the QDT, the trust protects the assets from:
- Heirs or other family members who might want the money once you pass on
Tax Benefits of a Qualified Disability Trust
With a QDT, you may qualify for an additional personal exemption if the disabled individual also qualifies for SSI or SSDI. You must have established the trust when the beneficiary was under age 65. Using IRS Form 1041, the income tax return for trusts, you can claim your personal exemption for a “Qualified Disability Trust.” and claim the full $3,500 exemption (instead of the $100 exemption that applies to most trusts). (1)
We Can Help
If you have a special needs person in your life that you want to help live a full and happy life, our attorneys at Hogan, Edwards, and Blue can help. Our experience in estate planning gives us the knowledge you need to set up and fund your QDT expertly. Let the disabled person in your life take advantage of government programs while also receiving an additional income to help with the extras they need. We help you set up a QDT so that everyone can benefit from your special needs planning. Contact us today and get started making a plan for your future and that of your family members.