Should I Buy a House for a Special Needs Trust Beneficiary?
There are many factors that must be considered before buying a home for a special needs trust beneficiary. If the trust funds are first party special needs trusts, the trusts have Medicaid payback provisions. This means that the house will be included as part of the trust assets available to pay Medicaid back for all expenditures made for the beneficiary during his or her lifetime. The house may have to be sold to reimburse Medicaid.
An alternative is to allow the Medicaid recipient to own the house individually. After age 54, the state has the right to make a claim against property owned by a Medicaid recipient following the Medicaid recipient’s death, but only for reimbursement of services received after 54.
Another thing to consider is whether the home is appropriate for the beneficiary given his or her disability. Further, the costs of modifying the home might outweigh the value of the home.
The trust could borrow money to purchase the home. This is because a mortgage or loan is not countable income for purposes of Supplemental Security Income or Medicaid eligibility. The receipt of the loan proceeds will not affect the benefits received. However, a mortgage will limit the amount of money that can be attached by a Medicaid lien to receive benefits upon the beneficiary’s death. It may also be difficult for a trustee to qualify for a loan because of low income or non-existent credit.
A trust funded with assets belonging to the beneficiary must be maintained for the sole benefit of the beneficiary, meaning that the trustee may need to charge rent to residents of the home that might help take care of him or her. This is to ensure that the trust is administered for the sole benefit of the beneficiary.
The beneficiary’s SSI may be affected if a special needs trust owns a home. If the home owned by the special needs trust is later sold, the trust receives the money. If the beneficiary owns the home and it is later sold, the sale proceeds must be reinvested in a replacement home within three months after the beneficiary receives the proceeds or the SSI benefits will be terminated due to excess funds.
Purchasing a home for people with disabilities can be beneficial but also costly. This decision requires careful consideration of numerous factors. If you are interested in purchasing a home for someone with a disability, please contact us to discuss these matters further and to help make the right decision for your special needs beneficiary.