Spend Down Trusts vs. Special Needs Trusts: Navigating Medicaid Eligibility
By Barry E. Janay, Esq.
When it comes to preserving Medicaid eligibility while managing assets, individuals with disabilities and their families have several options to consider. Two common strategies are Spend Down Trusts and Special Needs Trusts (SNTs). In this article, we’ll explore the differences between these options and provide helpful examples of how they can be utilized effectively.
Understanding Spend Down Trusts
A Spend Down Trust is a strategy used to reduce an individual’s countable assets to meet Medicaid’s eligibility requirements. This approach involves strategically spending excess resources on allowable expenses within a specific timeframe.
Examples of Spend Down Strategies
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Burial Planning: One effective way to spend down assets is by prepaying funeral and burial expenses. This can include purchasing a burial plot, casket, and other related services. By doing so, you’re not only reducing your countable assets but also alleviating future financial burdens on your loved ones.
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Paying Off Debts: Another viable option is to use excess funds to pay off existing debts, such as credit card balances or outstanding loans. This not only reduces your countable assets but also improves your overall financial health.
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Creating ABLE Accounts: For individuals whose disability onset occurred before age 26, establishing an ABLE (Achieving a Better Life Experience) account can be an excellent spend down strategy. These accounts allow for tax-free growth and can hold up to $100,000 without affecting Medicaid eligibility.
Special Needs Trusts: (d)(4)(A) and (d)(4)(C) Pooled Trusts
Special Needs Trusts offer an alternative approach to managing assets while maintaining Medicaid eligibility. There are two main types of SNTs to consider:
(d)(4)(A) Trusts
These individual trusts are designed for beneficiaries under 65 years old. Key features include:
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Can be established by the beneficiary, parent, grandparent, guardian, or court
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Must be funded with the beneficiary’s own assets
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Requires a designated trustee to manage the trust
(d)(4)(C) Pooled Trusts
Pooled trusts are managed by nonprofit organizations and can be suitable for beneficiaries of any age. Notable aspects include:
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Assets from multiple beneficiaries are pooled for investment purposes
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Each beneficiary has a separate sub-account
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May be more cost-effective for smaller asset amounts
Choosing the Right Option
When deciding between a Spend Down Trust and an SNT, consider the following factors:
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Asset Amount: For smaller sums, a spend down or pooled trust might be more practical.
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Age: (d)(4)(A) trusts are limited to those under 65, while pooled trusts have no age restrictions.
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Control: SNTs offer more long-term control over assets, while spend down strategies provide immediate solutions.
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Intended Use: Consider your specific needs and goals for the funds.
Important Considerations
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Trustee Selection: For SNTs, choosing a trustee is crucial. This should be someone trustworthy and capable of managing the trust effectively.
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No Medicaid Expenses: It’s important to note that funds in SNTs cannot be used to pay for expenses covered by Medicaid.
Conclusion
Navigating Medicaid eligibility while managing assets can be complex. Whether you opt for a Spend Down Trust or a Special Needs Trust, it’s essential to make an informed decision based on your unique circumstances.
At The Law Office of Barry E. Janay, P.C., we understand the intricacies of these financial planning strategies. We offer free consultations via Zoom or phone, and our team is ready to guide you through an initial consultation and questionnaire. Don’t hesitate to reach out – we’re here to help you make the best choice for your future.
Contact us today to schedule your free consultation and take the first step towards securing your financial well-being while maintaining Medicaid eligibility.
