This post was authored by Salvatore M. Capizzi, Dunham's Chief Sales & Marketing Officer as part of the Dunham Trust Series. If you have questions concerning today's topic, please call us at (858) 964 - 0500. Hold us to a higher standard.

According to the 2010 U.S. Census, a staggering 56.7 million people in this country have a disability. That's 1 out of 5 people - an absolutely incredible number.

If you or your client has loved ones with physical, mental, or behavioral disabilities, a Special Needs Trust may not only be a good fit, but an essential financial planning tool.

The primary function of a special needs trust is to provide monetary support to a special needs person without jeopardizing government programs such as Medicaid and Supplemental Social Security (SSI).

Certain assets, such as a disabled loved one’s primary residence, the land that the house is built on, furnishings, their car, and normal personal effects would not affect eligibility for Medicaid or SSI.

However, other assets, such as cash in any form, including the cash value of life insurance, stocks, bonds, real estate other than the primary residence, and multiple cars could disqualify your loved one from receiving SSI or Medicaid. In fact, having just $2,000 in cash would be sufficient to disrupt their government benefits.

Even 529 plans may cause SSI challenges.

When working with clients who have special needs children or grandchildren who are receiving Medicaid and SSI, you need make certain that the child or grandchild is not a beneficiary of your client’s a life insurance policy, IRA, or that certain assets are not left directly to them through a will or trust.

Instead, you might discuss the benefits of a Special Needs Trust.

With a Special Needs Trust, your client will choose someone to serve as trustee. This trustee will have complete discretion over the trust assets. The trustee must take care not to give money directly to your client’s loved one as it could also interfere with eligibility for Medicaid and SSI.

Instead, the trustee can use the trust assets to directly purchase and pay for a wide variety of goods and services such as medical and dental expenses, education, hobbies, vacations, personal care attendants, and physical rehabilitation.

Since your client’s loved one will not have control over the money, Medicaid and SSI will not consider the trust property for program eligibility purposes.

Due to the complexities of acting in the capacity of a trustee for a Special Needs Trust, we recommend that you consider a professional corporate trustee. A corporate trustee not only has the ability to navigate government benefits, their rules, and potential traps, but because a corporate trustee is immortal, the special needs child or grandchild does not run the risk of outliving their trustee.

Still curious about trusts? Visit the Dunham Trust Company website to learn more.

Need a copy of today's article for your compliance office? Click here to download the PDF.

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