Special Needs Trust Arizona
Planning for the future of a special needs loved one is a decision not to be taken lightly. The needs of people with functional, physical, or mental disabilities are growing all the time.
It’s possible to plan for the growing needs without jeopardizing the beneficiary’s ability to avail assistance provided by Supplemental Social Security (SSI), Arizona Long Term Care System (ALTCS), or Arizona Health Care Cost Containment System (AHCCCS).
There is a legal and ethical way to safeguard the future of the beneficiary without losing eligibility for ALTCS or other governmental benefits. The estate planning tool is called Special Needs Trust (SNT) or Supplemental Needs Trust.
Our guide will answer the most commonly asked questions about Special Needs Trust Arizona. By the time you reach the end of the page, you’ll have enough information to create a plan that secures the financial independence of your loved ones when they need it the most.
What Is a Special Needs Trust?
The Special Needs Trust is a legal arrangement made by the beneficiary, court, natural or legal guardian to ensure additional financial support without endangering the beneficiary’s claim to government benefits.
ALTCS or other needs-based government benefits programs that attend for those with special needs are often coupled with asset and income restrictions. This means money or property received by the beneficiary can reduce or cancel the eligibility for various benefit programs. The assets held in a special needs trust are not considered a countable asset while deciding the eligibility of the person.
Suppose you want to leave tens of thousands of dollars in your bank to your wife with Parkinson’s disease already receiving ALTCS benefits. If it pushes her total assets beyond the eligibility limit, the money she receives as an inheritance can disqualify her from receiving any public assistance.
You can prevent such a scenario by placing your assets in a special needs trust. Your wife will continue to receive government benefits and can meet certain other expenses not covered by Medicaid or SSI.
What Are the Benefits of a Special Needs Trust?
There can be many advantages for you if you know what is a special needs trust arizona used for. Both parties – the person who creates the trust and the beneficiary – can benefit from the trust.
The following are just some of the reasons why one should create a special needs trust:
- It provides financial support and improves the quality of life of the beneficiary.
- The beneficiary remains eligible to receive needs-based government benefits.
- The creator of the trust is assured that the asset or proceeds from the assets in the trust will be used for the stipulated purpose.
- Lawsuit winners or creditors cannot claim or access the assets placed in the special needs trust.
- If the trust mentions, the trustee or a financial advisor can invest the trust funds, and the proceeds should be used for the welfare of the beneficiary.
- The trust creator retains control over who inherits the trust funds or assets after the beneficiary’s demise.
- Setting up a special needs trust protects against financial misuse of the funds by the trustee.
How Special Needs Trust Funds Can Be Used?
The person managing the special needs trust must know how to spend the funds for the welfare of the beneficiary without affecting the eligibility for ALTCS or SSI.
The trustee cannot pay money or offer payment for food or shelter or provide food or shelter as benefits under the special needs trust.
Fund distributions for providing countable resources would reduce the beneficiary’s Medicaid grant or eliminate the public benefits.
The funds in the trust can be used to provide anything not illegal, against public policy, or not prohibited in the trust deed.
The trust funds can be used for a wide variety of non-countable assets. The trustee can provide for these without worrying about the net worth of the non-countable assets.
ALTCS and SSI do not consider properties that fall under the non-countable category as income. These assets are not included while determining the eligibility of the beneficiary.
Some of the items included in the list are as follows:
Home: House property that is used as the primary residence of the beneficiary. The asset is not considered as an eligibility criterion if its total value is below the limit set by ALTCS. Example: home purchase, home maintenance, repairs, renovations, and improvements.
Transportation: The trust funds can be spent on providing a motor vehicle of any value to be used by the beneficiary.
Essentials: Assets that furnish the house and essentials needed for self-support. The list is fairly exhaustive and anything under this category has no impact on the person’s eligibility. Example: clothing, dresser, and bed.
Lifestyle: Resources such as a computer, television, and telephone are included as non-countable. But payment towards utilities such as water, gas, and electricity are prohibited under the trust.
Education and Occupation: Distributions spent on approved occupational goals such as starting a business, vocational training, college, etc., including, any other product needed to further the above-mentioned goals. Example: computer, books, and tuition fees.
Medical: Medical needs not covered under ALTCS including physical therapy are considered as non-countable resources. Other examples: home care services, vision care, massages, and dental care.
Travel and Recreation: The trustee is also permitted to pay for other non-essential needs such as hobby supplies, museum visits, sporting events, travel, entertainment, magazines, books, and companionship.
Note: The rules on how trustees can spend the funds will differ based on the type of trust chosen and planned.
What Are the Different Types of Special Needs Trust?
You would be in a better position to plan for the needs of your loved ones who require special assistance if you understand the options available under the special needs trust.
Although there are several types of SNT the two most common types are First-Party SNT and Third-Party SNT.
First-Party Special Needs Trust
Individuals with property or expect assets in the form of gifts, inheritance, personal injury settlement, etc. can maintain their eligibility for needs-based government benefits by utilizing first-party SNT.
The plan is also known as a self-settled special needs trust because the beneficiary transfers his/her assets into the trust fund.
That said, according to 42 U.S.C section 139p(d)(4)(A) of the Federal Medicaid Law, first-party special needs trust can also be created by the court, the beneficiary’s parents or grandparents, or anyone legally considered as the guardian of the individual.
The law further mandates the individual suffering from any disability must be under the age of 65. Furthermore, in self-settled special needs trust the beneficiary cannot also act as the trustee.
In First-Party SNT, it’s also mandatory to include a provision in the trust document stating the remaining amount in the trust be handed over to the Medicaid agency after the death of the beneficiary.
After the beneficiary’s demise, the agency will receive only up to an amount that is spent as medical assistance on the beneficiary.
In addition, federal law states the trust fund must be used only for the sole benefit of the beneficiary.
In the case of Self-Settled SNT, only distributions mentioned under the Arizona Law (A.R.S. Section 36-2934.01 are permitted.
Fees: SNT related legal fees including payments made for legal advice, annual accounting, tax preparation, etc. This also includes conservatorship or guardianship fees.
Insurance Premiums: Payments towards health insurance premiums including vision and dental insurance.
Property: House purchased for the beneficiary. Distribution for purchase will not be considered for eligibility only when the house is titled to the trust.
Taxes: Income tax payments but only after the tax liability of the beneficiary and trust are established.
Others: Money spent for a companion who travels with the beneficiary for medical or non-medical reasons. And, any other expense approved by the AHCCCS director.
Note: Also read the non-countable resources section.
First-party special needs trust arizona can be revocable or non-revocable for receiving ALTCS benefits. While creating a revocable trust it’s mandatory to include a line that terminating the trust would trigger the payback provision.
Third-Party Special Needs Trust
A major difference between the Third-Party and First-Party SNTs is the funding source.
In the third-party trust, the funding is from a source other than the beneficiary’s assets. A trust is a legal way to make a gift or leave an inheritance to someone without putting their eligibility for government benefits in danger.
In this type of SNT, the person contributing the asset is called the ‘settlor’ or ‘grantor’ and the assets are placed in the hands of a ‘trustee’ who manages the trust. The law allows the grantor to also act as the trustee.
The grantor has the power to specify residual beneficiaries who would receive the remaining of the trust assets after the death of the primary beneficiary.
The primary beneficiary, if competent, has limited powers to assign in writing the use of trust funds for the benefit of others after his/her death.
A third-party or supplemental care trust can be a standalone trust, created during the grantor’s lifetime by transferring the title of the assets to the trust.
Alternatively, the third-party trust can be so designed to come into existence upon the happening of certain events such as the passing away of the grantor.
Like first-party SNT, third-party trusts provide for assets protection from creditors. But, unlike the former, the third-party trusts do not come with a payback provision. The remaining assets, upon the beneficiary’s death, revert to the grantor or individuals or charities mentioned by the grantor in the trust.
The trust can be created for the benefit of the beneficiary of any age. Subject to the provisions in the trust, the trustee has full authority over the assets and has the discretion over when and how to use the distributions. The beneficiary has no power to terminate or withdraw authority given to the trustee.
Under the third-party SNT, distributions directly made to the beneficiary are counted as income to determine ALTCS and AHCCCS eligibility.
In contrast, payments made to the vendors for food, shelter, other products, or services are not considered as income.
How to Decide Which Special Needs Trust Is Right for Me?
At the risk of sounding repetitive, understanding the salient features of these two types of special needs trusts will help you make a better choice.
- The beneficiary must be under the age of 65.
- The trust can be established by the beneficiary, court, guardian, or parents/grandparents.
- The individual will lose the ALTCS eligibility without a special trust to park the new assets.
- Already possess assets and has become disabled and might need Medicaid or other governmental benefits.
- Needs Medicaid or other government benefits but possesses excess assets/resources.
- The individual already receiving benefits under ALTCS or other schemes or might require such assistance in the future.
- The beneficiary is incapable of handling his/her financial issues.
- Created with the help of third-party assets by a grantor (parents/grandparents) to ensure the beneficiary gets the benefits of both worlds (distributions from trust assets and ALTCS benefits).
What Are the Common Questions to Consider Before Creating a Special Needs Trust Arizona?
The trust must provide for ongoing care and consider the changing needs of the beneficiary. Hence, creating a special needs trust isn’t simple, it must be flexible and at the same time, the language and provisions in the document must not anyway jeopardize the beneficiary’s ability to continue receiving governmental assistance. Consider the following questions before planning the trust:
When Do You Want the Special Needs Trust to Take Effect?
In third-party trusts, the grantor can ensure the beneficiary receives distributions now or after a certain event.
How Much Money or Assets Can I Transfer to the Trust?
Trusts are liable to pay higher taxes. Hence, factor in the taxes and trust fees before assigning assets to the trust.
To reduce the costs, do not transfer more than what’s required to meet the needs of the beneficiary. Also, consider how much the beneficiary needs and how long the funds should last.
Who Will Be the Trustee and What Will Be Their Powers?
The trustee manages the assets and distributes the funds, and has total control over the assets. Hence, choose the trustee wisely.
It’s prudent to have a backup if the one appointed is unable to perform duties as a trustee. Also, put down in writing things that the trustee can and cannot do.
Prohibit the trustee from taking any action that would affect the beneficiary from receiving governmental benefits.
The trustee must follow the dos and don’ts mentioned in the trust deed and also abide by the law that governs the actions of trustees in general.
Should the Trustee Have a Legal Background?
No. Although having a legal background will help the trustee manage the funds, it’s not mandatory to appoint a lawyer or bank as a trustee.
It’s advisable to seek the guidance of an expert well versed in SNT and other legal requirements for creating and managing the trust.
Does Creating a Special Needs Trust Make a Person Eligible to Receive ALTCS?
No. Although having a special needs trust helps the beneficiary stay within the eligibility bracket of ALTCS, the trust per se won’t help the individual qualify for governmental assistance. Multiple factors determine whether an individual receives public benefits or not. SNT isn’t one of them.
Do I Need Assistance to Create a Special Needs Trust?
There is no easy answer. While you can create an SNT on your own, we would advise against it.
The special needs trust document must be concise, clear, and conform to state and federal laws governing this particular area. A wrongly worded trust document can exclude the beneficiary from public benefits.
Hence, hire an elder law lawyer or expert to set up the trust and craft the SNT document. The lawyer or expert will know the assets that can be added to the trust and all legally permissible distributions.
The trust document created by an expert will be legally sound and will be in line with your plan for your loved one’s future.
Can an SNT Have Multiple Beneficiaries?
The Arizona Law clearly states that a trust can be created for the benefit of one or more people with disabilities. It’s also important to mention that residual (secondary) beneficiaries – individual(s) who will receive the trust assets after the death of the primary beneficiary – need not be disabled or considered special needs people.
How Much Will It Cost to Establish a Special Needs Trust?
The cost will depend on several factors. You will have to spend more if a financial entity or bank trust department is involved in setting up and maintaining the trust. Moreover, consider the overall cost before deciding how much money or assets to transfer to the trust.
Know about Importance of Durable Power of Attorney.
We hope now you have a clear understanding of Special Needs Trust Arizona and how it can safeguard your special needs loved one’s future. If you have more questions, feel free to comment or contact us. We’re here to help.