The answer may lie in the Supplemental Needs Trust (SNT). This is a special type of trust authorized by law in which you may place funds for a disabled person without affecting his or her benefits.
In order to be treated as exempt assets, there are very specific rules that must be followed. First, the trust must be set up by a parent, grand-parent or legal guardian. In addition, an SNT may be set up by order of a Court. Second, a trust must be set up for an individual who is under the age of sixty-five(65). Third, the trust must state that it is established for the benefit of the disabled person to "supplement but not supplant" government benefits to which the individual would otherwise be entitled.
Stating this intent is extremely important since it establishes this trust is specifically meant to be a SNT- one that will not effect the beneficiary’s Medicaid and other benefits. In addition, it gives guidance to the trustee as to what types of expenditures are to be made from the trust. In general, as long as it is for the benefit of the disabled person and would not normally be covered by Medicaid, Social Security Disability, etc., it falls within the framework of the SNT. Typically included would be travel, education, hobbies, companionship, additional medical help not otherwise covered and luxuries. The goal is, of course, to improve the disabled person’s quality of life. It should be remembered that, while the question here concerns a child in a nursing home, the SNT may also aid one who still lives in the community. This greatly expands the range of those items which a trust might provide and, in some cases, may make the difference in whether the person can stay in the community or must move on to a nursing home.
Ideally, there would be enough funds in the SNT to last for the life of the beneficiary and nothing left over. Naturally, this is not always the case. What happens if there is still money in the trust when the beneficiary dies? This depends on the type of SNT that has been established. When the trust is established from the beneficiary’s own assets, this is called a "First Party Supplemental Needs Trust". This most commonly occurs when someone has been seriously injured in an accident and receives money through a personal injury lawsuit. Proceeds of the lawsuit are considered to be his and they may be placed in an SNT so that he may retain any government benefits he may be receiving. In addition, the source of the funds may be a bequests contained in a Will or even funds he accumulated before becoming disabled. In such cases, where the funds for the trust come from the beneficiary, the law states that, in return for the special treatment of these funds, anything remaining when the beneficiary dies shall first go towards reimbursing the government for medical payments it has made. Such First Party SNT are often referred to as "payback trusts". After repaying the government, if there is anything left in the trust, it may be distributed to named beneficiaries such as family members.
On the other hand, when the trust is funded by a third party ("Third Party Supplemental Needs Trust")such as the parents of the disabled person either during their lives or through a Will specifically leaving money to the SNT, any funds remaining at the death of the beneficiary need not be used to reimburse the government. Rather, they can go directly to those individuals named in the trust.
This is a very important point to remember if you are having your Will prepared. First, a SNT must be established then the Will may be executed leaving a bequest to the SNT.
Finally, even if the disabled person is over the age of 65, there is a certain type of SNT which may be available.This is referred to a "Pooled Trust" and is one which is managed by various charitable organizations.
Although there are separate accounts for each beneficiary, the Trusts are pooled for investment and management. These may be established by either parents, grandparents, legal guardian, court or the disabled individual. Regardless of who establishes the Trust, if there is a balance remaining at the time of death of the disabled person, the trust has the option of retaining these funds or reimbursing the State.
As you can see, while this area of the law is quite complex and should be handled by an experienced legal professional, there are adequate provisions so that whatever your individual circumstances, a disabled adult child may be provided for through the use of a Supplemental Needs Trust.