Alternatives to Special Needs Trusts

Special Needs Trusts are costly to administer. Consequently, there are some situations where it is responsible to explore more cost effective options, usually due to smaller asset amounts available to fund the trust. Alternative options are limited and subject to review by public benefit agencies.

Spend down the funds for exempt assets

In the month the beneficiary receives funds, public benefit authorities can count the amount received as income that can affect eligibility status and, if the assets have not been spent or placed in a qualified special needs trust prior to the beginning of the next calendar month, they will be counted as resources available to the beneficiary that can negatively impact public benefits.  Conversion of resources to exempt assets can be an important strategy for some beneficiaries.   Any exempt asset purchase(s) must be consistent with the applicable POMS and state Medicaid policy requirements for the exempt asset. It is advisable to do careful research to assure that the asset will not disqualify the beneficiary from receiving needed public benefits. For instance, SSI and some state Medicaid policies establish an upper limit on prepaid funeral arrangements while others do not. Again, check frequently since POMS and Medicaid requirements are subject to change without notice.

Evaluate value and reasonableness of purchasing needed exempt assets such as –

  • A home where the beneficiary will reside, needed repairs or improvements to beneficiary’s home, or needed modifications to make the beneficiary’s home accessible.
  • A vehicle or adaptations to a vehicle for transport of a disabled beneficiary.
  • A pre-paid funeral or burial plan for the beneficiary.

Prepayment of living expenses

Living on a fixed income is challenging and pre-payment of certain expenses can reduce the amount of funds quickly to re-establish eligibility for important public benefits. Pre-payment or pay-off of debt for the following expenses may be considered.

  • Rent, utilities, insurance premiums, a home warranty program, differential rate for a single room in a residential facility, or similar expenses for a reasonable amount of time.
  • Dental treatment services or dental insurance premiums
  • Educational expenses
  • Hygiene and care supplies that are necessary but not covered by Medicaid or Medicare such as but not limited to, diapers, orthotics, wheelchair batteries or repairs, compression hosiery, nutritional supplements or other similar supplies
  • Documented loans or consumer debt accumulated while awaiting eligibility or a settlement, including promised payment to family caregivers and documented with written agreements
  • Recreational or cultural expenses such as a concert series or membership at a gym or wellness center

It is important to advise that beneficiary and guardian, if applicable, that transfer of assets without commensurate value to the beneficiary, hiding assets, or failure to report income or assets can result in ineligibility, over-payment determination and allegations of fraud.

Although not presently an option, a future option may be the creation of an ABLE account under the terms of the Achieving a Better Life Experience (ABLE Act of 2014). Qualifying ABLE accounts will be exempt assets for SSI and Medicaid subject to limitations. The ABLE Act was modeled after the 529 college savings plans. Before ABLE Accounts can be established for people with disabilities, the Internal Revenue Service and SSA must establish regulations and the state must pass enabling legislation and select ABLE account providers. Practitioners in the disability world should watch for developments and inform themselves about the program. Although originally intended to be simple, it is a complex program that limits the program to PWD that occurred before the age of 26, has tax implications for both the contributor and the beneficiary, is subject to annual and account limits for SSI eligibility, and would require careful orchestration if the beneficiary has or will have a Special Needs Trust. It is notable, and viewed as a negative by many, that all ABLE account assets are subject to Medicaid claim regardless of the source of funds. It is arguable that an ABLE account in the future may be another tool to supplement a special needs trust but is unlikely to ever be a replacement or alternative to a special needs trust. There are many helpful articles and resources on the internet about ABLE accounts but much has yet to be determined.  When IRS, SSA and Medicaid regulations and policies have been promulgated, MSNT will update the website with additional information.