This week, Aging Wisely’s Linda Chamberlain and Sue Talbott spoke at the Tampa Bay Financial Planners’ annual symposium. Their topic was “Effects of the Affordable Care Act on Special Needs Trusts”. For our readers who might personally be helping a special needs family member and professional advisors, we’ll share an overview of the topic and get in to some detail about resources to evaluate options.
Aging Wisely does not provide legal advice, such as when a special needs trust should be used or help in drafting one. However, we do provide a number of services related to special needs care and assistance for Special Needs trustees. We work closely with elder law attorneys who specialize in advising on these issues, and can make a referral if you need advice or assistance. This information is provided for educational purposes, and not as advice for your specific situation.
What is a Special Needs Trust (SNT) and why is one used?
In simple terms, a special needs trust allows funds to be used for the benefit of the person with special needs while preserving public benefits (such as SSI and Medicaid). Some of the situations where a special needs trust may be used include when a relative would like to leave an inheritance for a special needs child or when a disabled person receives an insurance or personal injury settlement.
Though a Special Needs Trust sometimes protects income benefits (such as SSI), it is typically the public medical benefits that are the most essential protected benefits. Even a person who receives or has a large sum of money may be uninsurable in the current healthcare landscape and quickly run through funds with high medical bills.
NAMI (National Alliance on Mental Illness) provides a good overview of the statute, types of Special Needs Trusts and purposes.
There are two basic types of Special Needs Trusts:
Self-settled (1st party) are established with funds belonging to the beneficiary; these trusts require a payback provision (in other words, the costs of benefits provided by the state must be paid back to the state upon the beneficiary’s death before any residual beneficiaries can receive remaining funds).
3rd party trusts can be set up by anyone (without a financial obligation to support the beneficiary) with funds that do not belong to the beneficiary; third party trusts do not require a payback provision.
How does the Affordable Care Act (aka Obamacare) potentially change the need for a Special Needs Trust?
- Previously uninsurable clients may now be able to get private medical insurance (due to ACA provisions eliminating pre-existing conditions and state health insurance exchanges).
- Some clients become disabled but already have private insurance. However, they max out their policy’s lifetime benefits and thus need public benefits. Under ACA, lifetime benefits and some other restrictions will also be eliminated, which may allow private insurance to now meet these individuals’ medical needs.
- The payback provision if a 1st party trust: what if the private healthcare costs would be less than what the trust will owe back to the state?
- Access and quality: under private insurance, the person may have access to more providers and specialists, potentially better care options.
- There are costs (set up and administration) to the Special Needs Trust and it puts some potential restrictions on the freedom of the beneficiary as to how the money is spent.
- Non-medical benefits that the person might be eligible for: under public benefits, the person might be eligible for residential services (Assisted Living, Nursing Home care), adult day care services, in-home/community based or managed care Medicaid…all of which are not part of traditional private healthcare and not added under the Affordable Care Act.
- Overall costs and benefits: compare all potential costs and consider future projections.
- Management: trusts can offer some level of protection for the beneficiary and help managing funds.
- Currently, and especially as the landscape becomes more complicated, understanding the beneficiary’s needs and costs is key.
- Understanding what benefits the person gets or could be eligible for, and future projections for a true apples to apples comparison.
- Documenting the decision process(es) will be vital, especially as residual beneficiaries are impacted.
Good special needs financial advice and ongoing management can only be done with a clear picture. A care manager can help professional advisors and families with things like:
- Assessment and budget: understanding of the programs and benefits that can meet the person’s needs and what their restrictions are (do they require a SNT?).
- Disbursements/management: evaluating the needs, most effective spending with balance on restrictiveness and desires of the individual.
- Changes: increased life expectancies with many disabilities and new options and programs may call for reevaluation.