Discover the two biggest drawbacks of a supplemental needs trust for injury victims in Kingston, New York.
A supplemental needs trust protects the eligibility of a disabled person for government benefits such as Supplemental Security Income ("SSI") and Medicaid. Both programs are available only to people with limited income and resources.
SSI provides income for food and shelter and Medicaid provides health insurance for medical expenses. Pretty important stuff, right? But there's a catch (actually two of them) and you should be familiar with the two biggest drawbacks of a supplemental needs trust before you sign the bottom line.
The #1 Drawback of a Supplemental Needs Trust
Supplemental Security Income provides for the basic "food and shelter" of a disabled person, i.e., rent, mortgage payments, electricity, taxes--things that are essential for your life. When you create a supplemental needs trust, you will remain eligible for SSI as long it the trust money is not used to pay for food and shelter. Only SSI can pay for food and shelter and if you use your trust money for food and shelter, you will stand a chance of losing at least a portion of your SSI monthly payment.
Trust payments for rent, mortgage payments, real estate taxes, gas, electricity, water, sewer, homeowner's insurance and condo charges for the trust beneficiary's residence are considered "in-kind support and maintenance", so they trigger a reduction in the monthly SSI payment. Not a good thing! Likewise, if the trustee pays for the trust beneficiary's food, i.e., grocery bill, the amount paid is considered income to the beneficiary, and the SSI benefit is reduced.
The trustee of a supplemental needs trust can use the trust money to pay for a broad variety of things, i.e., travel, education, caregiving or medical services not provided by Medicaid (to name just a few examples), but the payments cannot be made directly to the trust beneficiary, i.e., you. The trustee sends payment to the third-party provider and none of the trust money is ever seen by you. If the trust beneficiary gets any of the trust money in his/her hands, then he risks losing his eligibility for supplemental security income. And don't forget--if you lose your eligibility for supplemental security income, you are no longer eligible for Medicaid under New York law.
As the beneficiary of a Supplemental Needs Trust, you do not control the money. The trustee of the Supplemental Needs Trust has the sole discretion to determine how the trust money is disbursed. This means that you cannot access the trust money whenever you want and you can never be given cash or items that can be easily converted into cash. Monthly SSI payments can be reduced or eliminated if the person serving as the trustee gives the beneficiary cash or pays for the beneficiary's food or shelter.
With a Supplemental Needs Trust, there will always be restrictions on your ability to access the funds and how the trust money is used. The money in a Supplemental Needs Trust never belongs to the beneficiary. This is the #1 drawback of a Supplemental Needs Trust!
The #2 Drawback of a Supplemental Needs Trust
The Supplemental Needs Trust is subject to "payback" rules that require that the state be reimbursed for medical expenses after the trust beneficiary dies. This can result in the loss of the trust money to the State of New York upon the death of the trust beneficiary.
How about an example? Robby Jones is an eight-year old child with substantial physical and cognitive deficits caused by cerebral palsy. Through the Medicaid program, the State of New York has paid $600,000 for Robby's medical expenses since his birth. Six months after the Supplemental Needs Trust is created and funded with $1 million, Robby dies an unexpected death. This is where things get ugly for the Supplemental Needs Trust.
Unfortunately, the Supplemental Needs Trust must "payback" all of medical expenses paid by Medicaid during the entire course of Robby's life. The trustee must payback to the State of New York $600,000 before any of the trust money can be disbursed to Robby's surviving family members (called the "remainder beneficiarys"). Instead of $1,000,000, the beneficiary's survivors will have to divide $400,000. Not exactly the result the friends and family of Robby expected when they created the Supplemental Needs Trust.
The "payback" provisions that are required of a Supplemental Needs Trust can be devastating to the trust when the beneficiary dies. This is potentially a huge drawback of a Supplemental Needs Trust, particularly if the trust beneficiary has incurred substantial medical expenses that were paid by Medicaid.
Beware of the payback provision of a Supplemental Needs Trust! This might be the #1 drawback of a Supplemental Needs Trust.
Have I got you scared yet?
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