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Many parents continue to support and care for a disabled child long after the child becomes an adult. When the parent reaches a stage where their own health begins to fail, fear and concern about what will become of their disabled adult child comes to the fore. Fortunately, your Elder Law attorney will have some excellent solutions for this pressing problem.

Typically, consideration will be given to the creation of a Third Party Supplemental Needs Trust. This is a special kind of trust in which individuals can transfer assets for a disabled person’s benefit without endangering the beneficiary’s- or their own- government benefits. The Trust is meant to supplement the income from the beneficiary’s government benefits to enhance the beneficiary’s quality of life. A third party Supplemental Needs Trust may be established and funded by any individual who has no legal duty to support the beneficiary of the Trust, including a parent or guardian of a disabled child who is legally an adult. This Trust is particularly useful for an aging or disabled parent in need of long-term care who has a disabled adult child.

Under New York law, a Medicaid applicant can transfer assets to a trust for the sole benefit of a disabled individual who is under the age of sixty-five without incurring a penalty period. The Medicaid applicant who creates and funds the Trust is the “Grantor” of the Supplemental Needs Trust. Once assets or properties are transferred into the Trust, they may only be used for the sole benefit of the beneficiary during the beneficiary’s lifetime. No cash or assets from the Trust may be returned to the Grantor, nor used to pay for the Grantor’s care. This is referred to as the “sole benefit rule.” The Trust must explicitly provide for the trust funds to be spent over the lifetime of the beneficiary in a way that is “actuarially sound.” New York State will have no right of recovery and no right to place a lien against assets or property held in a Third Party Supplemental Needs Trust.

In order for the transfer to a Supplemental Needs Trust to be exempt for the Medicaid purposes of the Grantor, it must be established that the beneficiary’s disability meets the requirements of the federal Social Security Act. Under federal law, the term “disabled” means “an individual who has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to last for a continuous period of not less than 12 months.” Proof must be provided to establish the beneficiary’s disability.

If the Grantor is receiving Supplemental Security Income (“SSI”), then the transfer to the Third Party Supplemental Needs Trust will not result in an SSI transfer penalty. If the beneficiary of the Supplemental Needs Trust receives SSI, payments from the Trust for items or services other than food and shelter will not reduce the beneficiary’s SSI benefits. However, no Trust funds can be used to pay for the beneficiary’s food or shelter (including rent or utilities) without a reduction in SSI payments. This reduction cannot exceed one third of the beneficiary’s monthly SSI benefits. Living with a parent is viewed as a constructive payment by the parent for the child’s room and board, and will reduce the child’s SSI benefit. However, the beneficiary may enter into a rental agreement with the parent, and receive his or her full SSI payment. The parent will charge the child monthly rent, which must be based on fair market value, and should include services provided in the home, such as meals.

If cash is paid directly from the Trust to the beneficiary, SSI will view these payments as unearned income, and will reduce the SSI benefit dollar-for-dollar. Similarly, if the beneficiary is receiving Medicaid, cash distributions will be considered income that could limit the benefits provided to the beneficiary. However, if the trustee makes direct payments to third parties for goods or services, such payments are not considered income to the beneficiary for SSI or Medicaid purposes.

To learn more about Third Party Supplemental Needs Trusts, and other trusts available to protect your or your loved one’s assets without interfering with eligibility for government benefits, contact Lamson & Cutner’s Elder Law attorneys at 1 (877) 841-6767., or visit our website at www.lamson-cutner.com.

Lamson & Cutner welcomes your comments, questions, and feedback regarding The Elder Law Exchange newsletter.  Please feel free to contact us anytime at help@elderlawexchange.com.

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