Facts about a Special Needs Trust


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Special needs trusts are designed to help individuals have a better quality of life while retaining eligibility for government benefits. Individuals who have disabilities often have needs that are not covered by health insurance or government benefits. Because they may have limited income, special needs trusts help provide some of these supplemental needs without supplanting government benefits.

Many Programs Are Needs Based

Many government programs under which claimants may receive government benefits are needs-based. This means that they often have income or resource limits. If a person has income or resources that exceed the applicable limit, he or she may not qualify for the government benefits. For this reason, it is critical that individuals with disabilities take steps to ensure that they retain governmental benefits.

In particular, SSI is a needs-based program. This program provides for monthly payments to those individual for the purpose of providing for their food, shelter and clothing. To be eligible for this program, an individualís income cannot exceed the monthly benefit amount. Additionally, he or she must have resources under $2,000, except for resources that are specifically excluded. Medicaid is another needs-based program that pays for many medical expenses that a person with disability incurs. Medicaid has the same resource limit of $2,000 for single people and $3,000 for couples.

Claimants can Lose Benefits if They Receive Assets

Well-intentioned family members, parents or others may inadvertently cause a recipient to lose benefits by giving the claimant large gifts, an inheritance or financial support. For example, if a parent provides an inheritance to a child with disabilities who is receiving SSI, the child may lose SSI benefits until the funds have been spent. Additionally, the child cannot simply refuse the inheritance because this act is usually considered a disqualifying transfer that will cause a period of disqualification to commence.

A Trust May be Able to Protect Assets

Certain types of trusts can help protect assets while helping the claimant retain eligibility for benefits. This requires employing the use of a Special Needs Trust. This trust becomes the recipient of the disabled individualís assets. This type of trust names a trustee to administer the trust for the benefit of the individual with disabilities. The trust should specifically state that it is being used to supplement other benefits. Permissible uses of trust funds may include paying for salon services, massages, cable, transportation, travel, dental work, recreation and the payment of medical expenses not covered by the governmental program benefits.

The Trustee Has to Have Control

It is a requirement of such trusts that the beneficiary does not have direct access or control over the funds. The trustee has control over the trust assets and should follow the instructions of the trust. Because the trustee will have the ability to manage the trust and make purchases, it is important that the person establishing the trust carefully select this individual.

There Are Different Kinds of Special Needs Trusts

There are a number of special needs trusts. Each has its own unique characteristics and requirements. A self-settled Special Needs Trust is a trust that is set up with the disabled individualís own assets. He or she may have existing assets or may be coming into assets that may cause him or her to exceed the applicable resource limit. For example, he or she may be injured in a personal injury and may be entitled to a settlement. These trusts must meet specific statutory requirements based on the type of benefits that the disabled individual is trying to retain. Additionally, a self-settled trust must include a payback provision that states that the government program is entitled to the reimbursement of expended funds when the disabled individual dies. Then, the trust funds may be given to other beneficiaries.

A third-party trust is a trust that is established with someone elseís money, such as the disabled individualís parent. This type of trust does not usually have to contain a payback provision. A third type of special needs trust is a pooled trust. This type of trust is managed by a nonprofit organization. It usually uses the resources from multiple families and invests these funds for the benefit of the named disabled beneficiaries.

Legal Assistance with Special Needs Trusts

Special Needs Trusts are complex. Many individuals who need this type of trust to be established consult with an experienced estate planning lawyer. He or she can explain the legal requirements of this type of trust and take steps to safeguard the individualís financial and legal interests.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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