SPECIAL NEEDS TRUSTS: A COST-BENEFIT ANALYSIS
by: Begley Law Group
by Thomas D. Begley, Jr., CELA
In dealing with clients with disabilities, many professionals are quick to jump to the conclusion that if the client is receiving money it must be deposited into a Special Needs Trust. Before making this decision, it is useful to make an analysis as to the advantages and disadvantages of the Special Needs Trust as well as other options that might be available to the client with disabilities. The analysis should begin by gathering basic information and then comparing costs with benefits to determine whether a Special Needs Trust is appropriate. In gathering background information, begin by determining what benefits the client is receiving and what benefits they may be eligible to receive in the future. Means-tested benefits include the following:
- Supplemental Security Income (SSI) – SSI is a means-based federal program that provides income (a cash assistance grant) to certain aged (65 or over), blind, or persons with disabilities. These individuals generally do not have a significant work history. SSI recipients are automatically eligible for Medicaid in New Jersey.
- Medicaid – Medicaid provides health services for adults and children with disabilities. Medicaid provides access to basic medical and hospital care, as well as prescription drugs. Medicaid also covers long-term nursing home care.
- Long-Term Care Medicaid Waivers – The purpose of Medicaid Waiver programs is to provide Medicaid coverage for long-term care services in the community, either in-home or in assisted living facilities. Waiver programs are optional with the states.
- Federally-Assisted Housing – The most common form of federally-assisted housing is the Section 8 Voucher Program that provides rental assistance to individuals meeting certain income requirements. The income requirements vary throughout the country.
- Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps) – Participants in SNAP may purchase eligible food—food intended for human consumption, but not alcoholic beverages, tobacco, and hot foods or hot-food products prepared for immediate consumption. Eligible food can also include seeds and plants to grow food, Meals on Wheels, and meals in certain group living arrangements for elderly or disabled individuals.
- Veterans Aid and Attendance (A&A) – Veterans A&A is a cash benefit paid to certain qualifying Veterans or spouse of a deceased Veteran. The Veteran must be so helpless as to require the aid of another person to perform the functions required by everyday living.
- Temporary Assistance for Needy Families (TANF) – TANF is a block grant program to help move recipients into work and turn welfare in a program of temporary assistance. TANF is a cash assistance welfare program. TANF recipients are automatically eligible for Medicaid.
- Children’s Health Insurance Program (CHIP) – CHIP is a federal program to provide health insurance to children through the age of 18. The federal government gives a block grant to states and the states match the funds to administer the program.
- Low-Income Home Energy Assistance Program (LIHEAP) – LIHEAP is a cash assistance program that provides assistance with home energy bills, energy crises, and weatherization and energy-related minor home repairs. It is designed to keep families safe and healthy by reducing the risk of health and safety problems that arise from unsafe heating and cooling practices.
- Pharmaceutical Assistance – Many states have pharmaceutical assistance programs. These are essentially prescription drug insurance programs. In New Jersey, the primary programs are Pharmaceutical Assistance to the Aged and Disabled (PAAD) and Senior Gold.
- Group Homes – The New Jersey Division of Developmental Disabilities operates group homes throughout the state. These can be individuals sharing a home, an individual living alone or with a roommate in an apartment, an individual leasing his or her own apartment and receiving services on an as needed basis, or an individual living as part of the family of a caretaker and receiving assistance from that person and/or from an agency on a routine basis.
- Traumatic Brain Injury (TBI) Programs – New Jersey has a TBI fund that provides residents who have survived a traumatic brain injury with the opportunity to access the brain injury-related services and supports a need in the community. In addition, there is a New Jersey TBI Waiver Program designed to provide community alternatives for brain injured individuals who are currently in nursing facilities, or who are in the community and at risk for placement in nursing facilities and who meet established criteria.
- Many State Disability Programs – New Jersey provides individuals that have a disability with access to a number of programs. Assistance and benefits are also offered to their families as well as caretakers.
Non-means-tested benefits include:
- Social Security Disability Insurance (SSDI)
- Special Education
Alternatives to a Special Needs Trust include:
- Accept the Money. Accept the money and lose means-tested public benefits.
- Spend Down. An individual may receive the funds and spend down in the month the funds are received. Any money not spent down in the month it is received would be considered a resource as of the first day of the following month.
- Transfer the Funds. Accepting the money, transferring it to a third party who then establishes a Third Party Special Needs Trust. A transfer of assets would result in a transfer of asset penalty for certain benefits including SSI, Medicaid and Section 8 Housing.
- Settlement Protection Trust. A Settlement Protection Trust is essentially a Support Trust. It would offer benefits to the client. It would be necessary if the client is a minor or is incapacitated. Even to competent adults, the trust would offer expert money management and ensure that the money is not squandered. This would cause a loss of means-tested public benefits, but if the amount available to fund the trust is large enough this may be a good option.
- Pooled Trust. While a Pooled Trust is a Special Needs Trust, it is less expensive to establish and operate. These are generally suitable for smaller accounts, i.e., $150,000 or less.
- ABLE Accounts. A full discussion of ABLE Accounts is beyond the scope of this article, but does it make sense to allocate some of the funds the person with disabilities is receiving to an ABLE Account?
The next consideration is a cost-benefit analysis of a Special Needs Trust. The analysis would include the following:
- Preservation of SSI. What is the value of SSI over the beneficiary’s anticipated life expectancy?
- Value of Medicaid. What would be the premiums required for private medical insurance to replace Medicaid over the beneficiary’s anticipated life expectancy?
- Deductibles and Copayments. What would the deductibles and copayments be over the individual’s life expectancy under private medical insurance?
- Private Medical Insurance. Does the client need services not included under private medical insurance (for example, long-term care)?
- Affordable Care Act. Does the client qualify for private medical insurance under the Affordable Care Act (ACA) or otherwise? It should be noted that to qualify for insurance under the ACA, the client must have at least $1,000 in taxable income per month. Is the ACA likely to provide the necessary benefits? Is the ACA likely to be modified so that needed benefits are no longer available?
- Future Benefits. Does the client have the opportunity to obtain means-tested benefits in the future that he or she is not currently receiving? What is the value of those benefits over the life expectancy of the individual?
- Cost of Establishing the Trust. What is the cost of establishing the trust?
- Trustees’ Fees. What are the anticipated trustees’ fees over the anticipated life expectancy of the beneficiary? How do these fees compare with the cost of fees for a money manager, if the client receives funds and invests them?
- Medicaid Lien. What is the anticipated Medicaid lien involved in a Self-Settled Special Needs Trust that would accumulate over the anticipated life expectancy of the beneficiary?
Finally, while all of these costs are, at best, speculative, try to make the analysis and compare the dollar value of the Special Needs Trust and the cost of establishing it and contrast that with the cost saving of not establishing a Special Needs Trust.