Special needs trusts preserve public benefits for disabled Coloradans

Coloradans with disabilities can have their public benefits preserved through special needs trusts.

Most Colorado parents and family members of people with developmental disabilities like autism or Down syndrome cannot afford to provide the long-term care and services their loved ones need. These medical, therapeutic and residential services are usually paid for by public benefit programs such as Medicaid, Supplemental Security Income ("SSI"), and others.

To be eligible for such government programs, the individual must be disabled and meet low-income and low-asset requirements. For SSI and Medicaid, the nonexempt asset limit is currently $2,000.

Eligibility issues for these programs often arise in two situations:

  • The individual will receive a settlement or award in a personal injury lawsuit of an amount that would make him or her ineligible for benefits.
  • Parents, relatives or friends want to provide money during their lives or through a bequest in their wills to help the person, which would potentially create benefit ineligibility if the money went directly to the individual.

The resolution is to create a special needs trust, sometimes called a supplemental needs trust, supplemental care trust or disability trust, for the benefit of the disabled individual. Federal and Colorado laws that apply to these trusts and to public benefit eligibility are extremely complicated and if not followed with exactness, the trust assets could be considered available to the beneficiary, potentially creating benefit ineligibility.

Because of these legal complexities, it is imperative that any Coloradan needing legal advice about such a situation or wanting to set up a trust work with an attorney who regularly does this kind of work and is on top of changes in the law. With offices in Englewood and Louisville, the lawyers at the law firm of Vincent, Romeo & Rodriguez, LLC, provide this type of advice and counsel and help create appropriate special needs trusts for clients in the Denver metro and across the state.

In the first situation described above, when an individual with disabilities will receive a settlement or lawsuit award, the law allows his or her parent, grandparent, guardian or a court to set up a so-called first-person special needs trust to receive this money, with the disabled individual as the sole trust beneficiary. Otherwise, the money would go directly to the person and create benefit ineligibility. In such a situation, the lawsuit award would quickly be spent to provide expensive medical, residential and other living expenses.

This kind of trust must provide that when the beneficiary dies, the trust terminates with the remaining money reimbursing the state of Colorado for Medicaid that was paid to care for the individual during his or her life. The trust can then direct that remaining money after state reimbursement go to another person or to charity. This trust may also be the only option available to the disabled individual when he or she is named as a direct beneficiary of an inheritance - as opposed to having their inheritance sheltered in a third-party special needs trust, as described below.

In the second situation, when parents, family members or friends want to provide money for the person's benefit, a third-party special needs trust can be created with the person as the sole beneficiary to protect benefit eligibility. This kind of trust can be set up and funded during the lifetime of the settlor (person creating it) or as a testamentary trust (one set up and funded by operation of the settlor's will at death).

Sometimes this kind of trust is set up during the settlor's life so that people can leave money specifically to the trust by cross-referencing it in their wills or life insurance policies, rather than to the disabled person directly, which would again result in benefit ineligibility. In addition, unlike first-person special needs trusts, there is no state reimbursement provision and the settlor is free to name other individuals (e.g., other children) as remainder beneficiaries should there be anything left in the trust.

This only scratches the surface of special needs trust law. Anyone creating or administering such a trust should seek the careful guidance of an experienced attorney to avoid costly mistakes.

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