How To Provide For A Loved One Without Jeopardizing Benefits

When planning for the future of a loved one with special needs, we know that your goal is to provide long-term care and financial security without putting government benefits at risk. Families often worry that leaving an inheritance directly to someone receiving Medicaid or Supplemental Security Income (SSI) will cause them to lose eligibility. That concern is real as assets left outright to a person with disabilities can disqualify them from critical programs. Fortunately, Michigan law allows us to use special needs trusts as a tool to protect both the person’s financial stability and their access to benefits.

Special needs trusts are complex legal arrangements that must be carefully structured. These trusts are not just a matter of adding someone’s name to a bank account; they are formal estate planning tools recognized under Michigan law and federal rules. At Boroja, Bernier & Associates, we work with families across Oakland and Macomb County to ensure that their estate plans meet legal requirements while honoring their family’s unique circumstances.

What Is A Special Needs Trust?

A special needs trust (SNT) is a legal arrangement designed to hold and manage assets for a person with disabilities without disqualifying them from means-tested benefits. Michigan law recognizes these trusts under MCL 700.7502 et seq. of the Estates and Protected Individuals Code (EPIC). That statute explains that trusts may be created for the benefit of individuals with disabilities to supplement, but not replace, public benefits.

The trustee—the person you appoint to manage the trust—uses funds for expenses that improve the beneficiary’s quality of life, such as personal care services, transportation, home modifications, or education. These are items that government benefits often do not cover.

First-Party Vs. Third-Party Special Needs Trusts

Michigan law and federal regulations distinguish between two primary types of special needs trusts:

• First-Party Special Needs Trusts – Funded with the beneficiary’s own assets, such as a personal injury settlement or inheritance received directly. Under federal law, these trusts must include a Medicaid “payback” provision requiring that any remaining funds after the beneficiary’s death be used to reimburse the state.
• Third-Party Special Needs Trusts – Funded with assets belonging to someone else, usually parents or other relatives. These trusts do not require a Medicaid payback, which allows families to direct any remaining funds to other heirs after the beneficiary passes away.

Why Not Just Leave Assets Directly?

Leaving money directly to a person with disabilities can cause immediate eligibility problems. Medicaid and SSI have strict resource limits, generally $2,000 for an individual. If the beneficiary inherits assets outright, those funds must be spent down before they can requalify for benefits. By using a special needs trust, we can legally shield assets so they supplement government benefits instead of replacing them.

Choosing The Right Trustee

The trustee is critical to the success of the trust. They must follow strict rules to ensure funds are used properly. For example, under MCL 700.7817 et seq., trustees have fiduciary duties to administer the trust in good faith, act prudently, and put the beneficiary’s interests first. A trustee who mismanages funds could jeopardize benefits or expose themselves to liability.

Families often appoint a trusted relative, but in more complex cases, a professional trustee or trust company may be the better choice.

How Special Needs Trusts Fit Into Estate Planning

Special needs trusts are not stand-alone documents. They must be integrated into your broader estate plan, often alongside wills, powers of attorney, and health care directives. At our offices in Troy and Shelby Township, we frequently advise clients to pair an SNT with a life insurance policy or retirement account designation to ensure ongoing funding.

Creating the trust is only the first step. We also guide families through funding strategies and long-term planning so that the trust can provide sustainable care for decades.

FAQs About Special Needs Trusts In Michigan

What Can A Special Needs Trust Pay For?

A special needs trust can cover goods and services that enhance the beneficiary’s quality of life but are not provided by Medicaid or SSI. This includes things like home furnishings, specialized medical equipment, education, recreation, and even vacations. The key is that the trust must supplement rather than replace government benefits.

Can The Beneficiary Control The Trust Assets?

No, the beneficiary cannot have direct control over trust assets. If they do, the funds may be counted as available resources, which could disqualify them from benefits. A trustee is required to manage the funds and make disbursements on the beneficiary’s behalf.

Do Special Needs Trusts Affect Medicaid Eligibility?

Properly drafted special needs trusts do not count as available assets for Medicaid purposes. This is why careful drafting under Michigan law and federal regulations is essential. A poorly written trust could be treated as a resource, leading to loss of benefits.

How Do I Fund A Special Needs Trust?

You can fund a special needs trust during your lifetime or at your death through your estate plan. Common sources include life insurance proceeds, retirement accounts, or gifts from relatives. When setting up the trust, it is important to ensure beneficiary designations are updated so assets flow into the trust rather than directly to the individual.

What Happens If The Trust Is Not Managed Properly?

If a trustee uses funds incorrectly—for example, by giving cash directly to the beneficiary—the beneficiary’s benefits could be reduced or suspended. Trustees have fiduciary duties under Michigan law to act in the best interest of the beneficiary, and misuse of funds can result in legal liability.

Can I Change The Terms Of A Special Needs Trust After It Is Created?

In some cases, yes. Michigan’s trust modification statutes under MCL 700.7411 allow for modification or termination if circumstances change and the court approves. However, changes must be carefully reviewed to ensure they comply with federal benefit rules.

Contact Boroja, Bernier & Associates For Your Free Consultation 

At Boroja, Bernier & Associates, we understand how important it is to protect your loved one with special needs while preserving their access to vital benefits. Special needs trusts require precision, knowledge of Michigan law, and long-term planning. We are here to guide you every step of the way.

Contact our Michigan estate plan attorneys by calling 586-991-7611 to schedule your consultation. With offices in Troy and Shelby Township, we proudly serve clients throughout Oakland County and Macomb County, Michigan.