Special Needs Trust

 February 7, 2013
Posted by M&LAdmin4

Thursday, February 7, 2013

A special needs trust is the only legal solution to protect an individual with disabilities to qualify for government benefits. It is a legal document for placing funds and other assets in the control of a trustee, for the benefit of an individual with special needs. A special needs trust makes it possible for a beneficiary to receive extra income without losing valuable state and federal benefits. A trust which has been set up without regard to the eligibility laws may disqualify a person with disabilities from government benefits, specifically Supplemental Security Income (SSI) and Medicaid.

SSI and Medicaid are needs-based government benefits. In order to qualify for SSI and Medicaid, a person with a disability cannot have more than $2000 of resources or assets in their name. If the individual with a disability does not own the assets totaling more than $2000, he or she can remain eligible for government benefit programs. The funds in the special needs trust supplement but does not supplant government benefits. In most states, Medicaid is automatic when a person with special needs qualifies for SSI.

Trusts can be funded in various ways, either during the lifetime of the person who establishes the trust or upon their death.  It allows family members to gift assets, and leave an inheritance or life insurance to a person with special needs without disqualifying him or her for government benefits.

There are three distinct types of special needs trusts; first party/self-settled/d4A; third party/supplemental or pooled special needs trusts.

  • First Party; Pay-Back; (d)(4)(A) Trust

–   If the person with special needs has more than $2000 in his/her name, typically because of excess savings, inheritance or an accident settlement, the government allows him or her to qualify for SSI so long as he/she places his/her assets in a first party/pay-back/(d)(4)(a) trust.

–   The trust must be created by someone else (parent, grandparent, court) but not the person with special needs who is the beneficiary, even though it is the assets of the person with special needs that fund the trust.

–   When the individual with special needs is living, the funds in the trust are used for his/her benefit and when he/she dies, any assets remaining in the trust are used to reimburse the government for the cost of that person’s medical care (Medicaid).

  • Third Party; Supplement Trust;

–   Created by someone other than the person with special needs for the benefit of the individual with disabilities.

–   Can hold any kind of asset belonging to donor including a house, stocks & bonds, and other types of investments. Can also be the beneficiary of a life insurance policy.

–   Does not contain the “payback provision” because the assets were never originally in the special needs person’s name. Therefore, any funds remaining in the trust can pass to other family members, or charity, without having to be used to reimburse the government.

–   This type of special needs trust is the most common

  • Pooled Trust

–   Trust money is held and administered by a non-profit 501(c) and it works like the “pay-back” trust.

–   When there is not a lot of money for a stand-alone special needs trust, a non-profit sets up these trusts that allow beneficiaries to pool their resources for investment purposes. Each beneficiaries account is maintained separately for that beneficiary’s needs.

–   When the beneficiary dies, the funds remaining in the account reimburse the government for the beneficiary’s public benefits received, and often a portion goes to the non-profit for management before the remainder passes to the beneficiary’s heirs.

It is important to remember that when creating a special needs trust, the family must work with an attorney who understands special needs planning. Special Needs Trusts are specific, and if written incorrectly can actually disqualify the individual with disabilities from government benefits. Also, it may be useful to note that 92% of all Third Party/Supplemental Trusts are funded with life insurance.

If you have any questions regarding the Special Needs Trust, please contact us. We are here to help, and we would love to hear from you!

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