Special Needs Beneficiaries

Provide for Disabled & Special Needs Beneficiaries While Protecting Eligibility for Government Benefits

If you or a loved one have a disability or other special needs, facing challenges is part of your daily life. Estate planning and financial protection planning for a beneficiary with a disability or special needs comes with their own unique challenges. Many persons who have a disability or special needs rely on need-based government assistance benefits, such as Supplemental Security Income (SSI), Medicaid, housing vouchers, food stamps, and other benefits. To qualify for these benefit programs, a beneficiary must meet and maintain certain asset and income eligibility criteria. For example, to qualify for Medicaid benefits a person must have no more than $2,000 in countable assets and less than $2,829 of monthly income (in 2024).

Many families believe that the only way to protect and preserve eligibility for these benefit programs is to completely disinherit a family member with a disability or special needs. This myth is completely false! There are a number of tools available to plan and provide for special needs beneficiaries while preserving their eligibility to continue receiving need-based government benefits. Moreover, most beneficiaries who have a disability or special needs depend on additional financial resources to provide quality of life and pay for things that benefits programs don’t cover. Qualifying trusts and STABLE accounts can be used to pay for internet service, cable television or streaming services, entertainment, uncovered dental treatment, companionship and personal services, hair care and personal grooming, hobbies, a gym membership, clothing, pet care, housekeeping, travel, and more.

There are several effective tools available to plan and provide for yourself or a loved one who has a disability or special needs while maintaining eligibility for need-based benefits, including Medicaid and SSI:

WHOLLY DISCRETIONARY THIRD-PARTY SPECIAL NEEDS TRUSTS:

A Wholly Discretionary Third-Party Special Needs Trust can be created and funded by anyone other than the disabled or special needs beneficiary. A Wholly Discretionary Trust is a powerful planning tool for parents, grandparents, and other family members who want to leave money or other property for the benefit and support of a loved one who has a disability or special needs. Trust funds and property can be used to provide any goods and services for a special needs beneficiary that are not covered by government benefits programs.

Unlike some of the planning options discussed below, there are no age restrictions and no Medicaid payback requirements. A Wholly Discretionary Trust can be established for any beneficiary who has a disability or special needs. Family members can be designated as remainder beneficiaries if there are funds remaining in trust when the special needs beneficiary dies.

A Wholly Discretionary Trust is by far our safest and most flexible special needs planning trust option, but the person selected to serve as trustee must be particularly trustworthy. The trustee is not required to make any distributions for the benefit of the special needs beneficiary, it is up to his or her discretion to do so. Since the trustee of a Wholly Discretionary Trust cannot be compelled to make distributions from the trust, the trust’s value and income are ignored when determining a beneficiary’s eligibility for needs-based benefit programs.

THIRD-PARTY HEMS SPECIAL NEEDS TRUST WITH A POISON PILL:

A Third-Party HEMS Special Needs Trust with a Poison Pill can be used to plan and provide for a beneficiary with a disability or special needs who receives Medicaid benefits but is not on SSI. Like a Wholly Discretionary Trust, parents, grandparents, family members and others can create and contribute to a HEMS Special Needs Trust for the benefit of any loved one with a disability or special needs. There are no age restrictions and no Medicaid payback requirements.

Unlike a Wholly Discretionary Trust, the trustee of a HEMS Special Needs Trust is required to spend trust funds and use trust property for the beneficiary’s “health, education, maintenance and support.” The trustee has less discretion and the disabled beneficiary or someone acting on their behalf can compel the trustee to make distributions as needed. In the right set of circumstances, this can be a safer option than relying on the trustee’s discretion to meet the beneficiary’s needs.

A HEMS Special Needs Trust must contain a “poison pill” that terminates the trust automatically if it is considered a countable resource for Medicaid eligibility purposes. The poison pill prevents Ohio Medicaid authorities from considering the value of a HEMS Special Needs Trust. However, a HEMS Special Needs Trust is considered a countable resource for federal SSI benefits and for Medicaid benefits in many other states. As a result, there is a narrow range of circumstances where a HEMS Special Needs Trust is an effective planning option.

D4A SELF-SETTLED SPECIAL NEEDS TRUSTS:

A D4A Self-Settled Special Needs Trust can be created for the sole benefit of any person with a disability who is under 65 years of age. The trust may be created by a parent, grandparent, guardian, disabled individual, or a court, but can only hold money or property belonging to the disabled beneficiary. A person with a disability may transfer his or her own assets into a Self-Settled Special Needs Trust without penalty and maintain eligibility for SSI and Medicaid benefits. Because of this, D4A Trusts are most commonly used to protect money received from an inheritance, settlement, lawsuit, lump sum benefits payment, or if the case of sudden adult disability onset.

Only the disabled beneficiary may contribute money or property into a D4A Special Needs Trust. Timing is also important – to avoid the loss of public assistance benefits, lump sums received by a disabled person must be transferred into a D4A Special Needs Trust (or another exempt trust) during the same month that funds are received. D4A Self-Settled Special Needs Trusts are authorized and exempt under U.S. Code 1396p(d)(4)(A) and this section is where the “D4A” or “d4A” name comes from.

Distributions from a D4A Special Needs Trust are also wholly discretionary, so the trustee must be particularly reliable. Like the trustee of a Wholly Discretionary Trust, the trustee of a D4A Special Needs Trust cannot be compelled to make distributions from trust for the beneficiary. Unlike Pooled Trusts, D4A Special Needs Trust funds can be used to pay for housing costs, such as rent, mortgage payments, or utilities, but the beneficiary’s monthly SSI benefits will be reduced.

If there are excess funds remaining in trust when the disabled beneficiary dies, those funds must be used to payback the value of state Medicaid benefits the beneficiary received. Family members cannot be designated as reminder beneficiaries of a Self-Settled Special Needs Trust until after the state is paid back in full.

D4C POOLED SPECIAL NEEDS TRUSTS:

D4C Pooled Special Needs Trusts are often simply referred to as “Pooled Trusts”. Pooled Trusts are managed by qualified non-profit organizations. The trust funds for many disabled beneficiaries are “pooled” together for management and investment purposes and the trust beneficiaries share the lower administration and investment costs. A separate account is still maintained for each disabled trust beneficiary and funds contributed into a Pooled Trust are for that beneficiary’s sole benefit. D4C Pooled Special Needs Trusts are authorized and exempt under U.S. Code 1396p(d)(4)(C) and this section is where the “D4C” or “d4C” name comes from.

A Pooled Trust may be created by a parent, grandparent, guardian, disabled individual, or a court, and may be funded with the disabled beneficiary’s own money or money from a family member or other third party. Under Ohio law, a Pooled Trust may be created for a disabled beneficiary of any age. However, if a beneficiary who is 65 or older and receives SSI contributes his or her own money into a Pooled Trust, the beneficiary will be penalized and may lose SSI benefits for up to 36 months.

A Pooled Trust is a good planning option for individuals or families who lack a qualified trustee. The managing non-profit serves as trustee, but a family member or loved one may serve as a representative and request distributions from trust on behalf of the disabled beneficiary. Pooled Trust funds can be used to pay for goods and services not covered by need-based benefits programs. Funds in a Pooled Trust cannot be used to pay for housing costs, such as rent, mortgage payments, or utilities. Most Pooled Trusts have very low minimum contribution requirements and can be used to plan for and protect smaller balances of money.

If there are excess funds remaining in trust when the disabled beneficiary dies, those funds must either be used to pay back the value of state Medicaid benefits the beneficiary received or may remain in the Pooled Trust for the benefit of other persons with disabilities.

OHIO STABLE ACCOUNT:

An Ohio STABLE account allows eligible individuals with disabilities to have, save and invest money without losing eligibility for certain public benefits programs, like Medicaid or Supplemental Security Income (SSI). A STABLE account can be opened for a disabled person of any age, provided that their disability onset occurred prior to age 26 (the onset age will increase to 46 in 2026). The account may be opened by a person with disabilities or his or her Authorized Legal Representative, which includes a power of attorney agent, guardian, spouse, parent, sibling, grandparent, or SSA representative payee (in that order of priority).

Anyone can make contributions to a STABLE account, including the disabled account owner, family members, trustees of Special Needs Trusts, and others. Total contributions to a STABLE account cannot exceed $18,000 per year. A disabled beneficiary who is working can contribute up to an additional $14,580 of their own income (as of 2024). Lifetime contributions to a STABLE account are capped at $541,000. There are no balance limitations on a STABLE account, but a beneficiary’s SSI benefits will be suspended if the balance exceeds $100,000.

Money contributed into a STABLE account can be used to improve the beneficiary’s health, independence and quality of life. STABLE account funds can be used to pay for any qualified disability expenses, which includes everyday living costs and quality of life expenditures. A STABLE account can even be used to pay for housing costs without interfering with eligibility for SSI benefits! STABLE account earnings are not subject to federal income tax so long the income is spent on qualified disability expenses.

Like D4A and D4C Trusts, if there is a balance remaining in a STABLE account when the account beneficiary dies, the state Medicaid programs will be reimbursed from the account for the value of benefits paid for the beneficiary since the account was opened.

For more information, please visit the Ohio Treasurer of State’s STABLE account program website at https://stableaccount.com/.

GUARDIAN NOMINATIONS & POWERS OF ATTORNEY:

Most people with a disability or special needs rely on others for at least some assistance, and many are completely reliant on others to meet their daily needs. If your child with special needs has or is likely to need a guardian in the future, nominating successor guardians is an important part of the special needs planning process. Individuals with a disability or special needs who have higher capabilities may be able to create powers of attorney and designate their own agents to make health care decisions and manage finances and personal business. If an individual has the mental capacity to create powers of attorney, this may prevent or delay the need for a probate court proceeding to appoint a guardian.

Special Needs Planning can make a huge difference in the quality of life a person with a disability enjoys while maintaining eligibility for valuable and necessary public benefits programs. Planning ahead and setting aside money won’t fix all problems, but it can provide quality of life that is unattainable from public assistance benefits alone.

The opportunity to assist individuals and families with special needs planning is personally meaningful and rewarding. Although I did not grow up in a special needs family, I have witnessed and experienced the challenges such families and individuals face. While in college, I volunteered for several weekends of child respite care at Camp Easter Seals. That experience was so powerful that as a young adult I welcomed the opportunity to work in group home programs serving adults with disabilities. In a group home setting, the residents start to feel like family and 30+ years later I still have a picture collage they made for me in my law office to remind me. During my 30s, I had the opportunity to parent three special needs children who were removed from their mother’s care and help them develop skills and reach towards their full potential. They are all grown up now and living with family overseas, but I will never forget them or the lessons they taught me.