1st party vs 3rd party special needs trust
Attorney Tom Olsen: Robert, before the break, we were talking about special needs trust, and we were talking about, let's just call him Abel. That's our person here. Abel has inherited money, but Abel is also on Medicaid and Social Security Disability. If he were to inherit money, which he did, let's say $100,000, that would disqualify him for disability and Medicaid, but there's a way around that.
Attorney Robert Hidock: Correct, because that would put Abel over asset limits because there's only allowed $2,000 in countable assets. He would be way over. He would lose his benefits. In actuality, what we're doing, we're creating a trust. The $100,000 gets deposited in the trust, so Abel never has access to that money. The trustee then has the discretion to use that money for Abel in any capacity for his care. If he wants to take him somewhere, buy him things, a new computer, TV, it all works out. The trustee just has to pay the vendor directly. He cannot give Abel cash.
Attorney Tom Olsen: This is a situation where Abel inherited money from his long-lost aunt. The long-lost aunt didn't know that Abel was on disability in Social Security. This $100,000 goes into the special needs trust. What happens when Abel passes away?
Attorney Robert Hidock: When Abel passes away, Medicaid will be the first beneficiary. They will get a chance of recovery. If the money is no longer in the trust account, let's say it was all spent down, they'll absolutely get nothing. Let's say there's $25,000 left, and Medicaid had a claim for 10. Ten comes out of it, the remaining would go to Abel's beneficiaries, just like in a regular trust or will.
Attorney Tom Olsen: That's a situation where the money literally belonged to Abel. Let's talk about a different situation. Say some parents come to us, and they've got a son named Charlie, and Charlie is on disability, Social Security, and Medicaid. The parents want to do something. They want to leave some of their wealth to their son Charlie when they pass away. We're also now talking about a special needs trust.
Attorney Robert Hidock: Different kind of special needs trust. What we're talking about before, in theory, is called a first-party special needs trust. The special needs trust you're talking about becomes a third party where someone is setting the trust up for them, knowing that they have a disability. In that case, Medicaid does not have to be the beneficiary for recovery because it was set up prior to that.
Attorney Tom Olsen: That's what I didn't know what the terms were. There are first party and third party. If the parents want to leave money to their son Charlie, who's on disability, Social Security, and Medicaid, they can put this money into this third-party special needs trust, and what would the trustee be using that money for? How would the trustee spend that money for Charlie's benefit?
Attorney Robert Hidock: Pretty much the same way for his care. It's not meant to take the place of the benefits that he's receiving, but it's used to supplement it. If he's on Medicaid, most people assume, like in our world, skilled nursing, but a lot of times they're on community-based Medicaid, and so they're basically living their regular life but with some benefits. If they wanted clothes or they needed a new computer for school, or TV, they certainly could do that. Anything that enhances that person's life.
Attorney Tom Olsen: If Charlie was living at home with mom and dad, could the parents leave the home into this third-party special needs trust?
Attorney Robert Hidock: They could, because for Medicaid, the house is not accountable asset anyway.
Attorney Tom Olsen: All great tools for people who are on Social Security, Disability, and Medicaid. Sometimes I get those terms confused. Somebody may be on Social Security Disability, but does that always mean they're Medicaid qualified?
Attorney Robert Hidock: Not all the time. Usually, once they get SSDI, they then can qualify for Medicare, because prior to the age of 65, they'll go on Medicare, and then some of those will then convert to Medicaid.
[00:04:16] [END OF AUDIO]