How a special needs trust can help

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Q. My brother has Down Syndrome and lives in a group home, and he works a low-paying job. My parents are gone. They never set up anything to help him financially, and I’d like to do something. How do I start, and what are my options?
— Wanting to help

A. We’re glad to hear you want to look out for your brother.

You want to make sure that whatever arrangements you make won’t have a negative impact on any benefits he already receives.

Many people with developmental disabilities who live in a group home receive means-tested benefits. That may include Supplemental Security Income (SSI), a monthly cash benefit program administered by the Social Security Administration, and Medicaid, a health insurance program which also may pay a portion of the costs of room and board in the group home, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

“As there are income and asset limits for these programs, proper planning must be done to avoid rendering the reader’s brother ineligible for those programs,” Whitenack said.

Some individuals living in group homes may receive non-means tested benefits such as Social Security Disability (SSD) and Medicare. This means that they can receive these benefits regardless of the amounts of their income or assets, Whitenack said.

Still others can receive all four of these benefits.

You can create a third party special needs trust for the benefit of your brother.

“The assets and income in the trust can be used to pay for services, supports and items that are not covered by Medicaid without adversely affecting the sibling’s eligibility for SSI and Medicaid,” Whitenack said.

You can be the trustee of this trust.

Whitenack said in addition to making contributions to the trust during your lifetime, you can leave a portion of your estate to the special needs trust through your own will or trust.

Unfortunately, there is a significant cost associated with establishing a special needs trust so you’ll need to consult with an attorney experienced in drafting special needs trusts to address the feasibility of establishing such a trust.

Whitenack said there’s another option: establishing a subtrust in a pooled trust designed to hold third party contributions.

“The advantage of a pooled trust is that it is generally less expensive to establish than a private third party special needs trust,” she said. “The disadvantage is that the pooled trust’s trustee will have sole, unfettered discretion to decide how the assets in the trust will be used.”

There is one more option for the future, but it’s not yet available in New Jersey.

The Achieving a Better Life Experience (ABLE) Act amends Section 529 of the Internal Revenue Service Code of 1986 to create tax-free savings accounts for individuals with disabilities, Whitenack said. The goal is to provide funds to cover qualified expenses such as education, housing and transportation without jeopardizing means-tested benefits such as SSI and Medicaid.

“The Act permits deposits of up to $14,000 per year,” Whitenack said. “Although the ABLE Act was passed by Congress, each state must promulgate its own legislation to provide for the establishment of such accounts. A bill has been introduced in the New Jersey legislature but it has not yet been passed so it is not yet possible to establish an ABLE account in New Jersey.”

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This story was first posted in November 2015. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.