If you have a loved one with a disability, you may be concerned about how to provide financial support without disrupting their eligibility for important government benefits.
Special needs planning addresses this challenge by using legal tools that preserve benefits while improving quality of life. The following questions and answers cover common concerns that Nebraska families face when planning for a family member with special needs.
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Special needs planning is the process of arranging assets and legal structures so that a person with a disability can receive disability or other means-tested qualifying income without losing any needs-based public benefits such as Supplemental Security Income (SSI) and Medicaid, or having to requalify for such benefits.
The plan often includes a special needs trust, coordinated with your overall estate plan, to safeguard eligibility and provide long-term stability.
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SSI and Medicaid have strict income and asset limits. In Nebraska, having more than $4,000 in countable assets will generally disqualify a person from these programs.
Leaving an inheritance or making a direct gift could cause a loss of benefits until the funds are spent down to $4,000. Special needs planning avoids this disruption by placing assets in a properly structured trust that is not counted toward those limits.
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A special needs trust (SNT) is a legal arrangement that holds and manages assets for the benefit of a person with a disability. The trust can pay for goods and services that improve the quality of life without giving cash directly to the beneficiary, which would be counted as income.
The trustee manages distributions in compliance with program rules, so benefits are preserved.
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Yes. The main types are:
- First-party special needs trust – Funded with the beneficiary’s own assets, such as a personal injury settlement, back payment of benefits, or an inheritance received without prior planning.
- Third-party special needs trust – Funded with assets belonging to someone other than the beneficiary, such as a parent, grandparent, or other relative.
- Pooled trust – Managed by a nonprofit organization, with individual accounts for multiple beneficiaries. These trusts can be funded with either first-party or third-party assets.
Each type is used in specific circumstances, and the choice depends on whose funds are being placed in the trust and the overall planning goals.
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A trust can pay for a wide range of supplemental needs, such as:
- Education and vocational training
- Personal care attendants and respite care
- Transportation, including a modified vehicle
- Computers, cell phones, and internet access
- Hobbies, recreation, and travel
- Medical and therapy expenses not covered by insurance or Medicaid
The key is that distributions must be made for the beneficiary’s benefit without violating SSI or Medicaid rules.
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An ABLE account is a tax-advantaged savings account available to individuals whose disability began before age 26. Annual contributions are capped at the rate of the annual gift tax exemption, and the account can hold up to $100,000 before SSI benefits are affected.
Funds can be used for a broad range of disability-related expenses. While an ABLE account is useful for certain purposes, it has more limited capacity and eligibility rules than a trust. Many families use both tools together.
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The trustee should understand financial management and the rules governing public benefits. You may choose a family member, professional trustee, or corporate fiduciary.
A family member may know the beneficiary’s needs well, but a professional brings experience and neutrality. The best choice depends on the complexity of the trust and family dynamics.
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The best time is as soon as possible. Early planning allows you to coordinate your estate plan with your loved one’s needs, choose the right type of trust, and avoid last-minute transfers that could cause delays, disqualification or other penalties.
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This depends on the type of trust. If you are using your own funds to create a trust for someone else, it must be a third-party special needs trust so that the assets will be protected from Medicaid recovery.
With this type of trust, any funds remaining after the beneficiary’s death will go to a successor beneficiary of your choosing, as stated in the trust agreement.
If the trust is funded with the beneficiary’s own assets (a first-party trust), federal law requires that any remaining funds be used to repay Medicaid before distributions to other heirs.
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Let’s Get Started!
If you are ready to work with an experienced Nebraska estate planning lawyer to create a personalized plan based on your family’s needs, call us at 402-934-4409 or send us a message through our contact page.
