Special Needs Trusts

What is a Special Needs Trust (SNT)- a trust that allows an individual with a disability to receive gifts or other funds without losing governmental benefits.

Why Create a Special Needs Trust-Supplemental Social Security (SSI) and Medicaid have income and asset limits. A SNT allows SSI and Medicaid recipients to receive money or other assets including a gift or inheritance without the loss of benefits.

Types of special needs trust:

  1. Third party trust: Often used by parents or other family members for advanced planning. They are funded by anyone other than the beneficiary.
    1. May be funded at time of creation or at a later time or when the trust creator dies.
    2. Eligibility for government benefits is not affected by a properly created third party trust.
    3. Upon the death of the beneficiary, the funds would be disbursed to whomever is named in the trust. The government has no rights to the trust assets.

How are third party trusts funded: Funds can come from a variety of sources, including:

    • Assets left in a will by parents or others
    • Life insurance
    • Gifts from parents or others

 

  1. First party trust: Used when the beneficiary already has assets from an inheritance, settlement or some other source.
    1. Court approval must be given prior to establishing the trust.
    2. Upon the death of the beneficiary, the remaining assets will be subject to clawback from Medicaid for the cost of services it provided the beneficiary.

This type of trust should only be used when the special needs individual already has the assets in their name.


What can the funds in a SNT be used for: The funds may be used for any expense the trustee deems appropriate and benefits the beneficiary alone, except for food, housing and utilities. Some examples include:

            -Medical bills

            -Education

            -Clothing

            -Electronics

            -Vacations


How to create a Special Needs Trust?
Hire an estate-planning attorney that is very knowledgeable about special needs trusts.

Alternative to Special Needs Trusts: ABLE Accounts are a tax-advantaged savings accounts for individuals with disabilities and their families.

Click for more information about Able Accounts »