A special needs trust is a type of trust established for the benefit of a disabled individual in order to provide them with a means of support while still qualifying for government benefits such as Medicaid and Supplemental Security Income (SSI). Government benefits only provide a very basic level of support. A special needs trust can provide the ability to significantly improve the quality of life of a disabled individual.
Broadly speaking, there are two types of special needs trusts: self-settled and third-party.
Self-settled, also known as first-party trusts, are trusts either created by, or with the money of, a disabled individual. Often times if a disabled individual is set to receive either an inheritance or personal injury settlement, a court can order that the money that would otherwise go directly to the disabled individual be placed in or used to create a self-settled trust.
One major difference between self-settled and third-party trusts is that self-settled trusts generally require greater oversight and face more restrictions. First, all self-settled special needs trusts must require that the state Medicaid agency get paid back for any benefits provided if there is money left over after a beneficiary dies. Second, self-settled trusts generally receive greater oversight from courts and state agencies.
Third-party trusts are created and funded by someone on behalf of a disabled individual. Typically a third-party trust is created and funded by a parent or grandparent of the disabled individual. Other relatives and individuals who wish to help the disabled individual can then give directly to the third-party trust. Third-party trusts do not require a Medicaid payback provision. Once the beneficiary dies, all of the remaining trust funds can be distributed in whatever manner the trust document directs.
Once in operation, a special needs trust can provide for many benefits to enhance the quality of life of a disabled individual. However, there are certain restrictions on how trust funds can be used. For example, if trust funds are used for food or shelter expenses, the beneficiary’s SSI payments may be reduced, or, cancelled altogether. For this reason, a special needs trust should only be drafted by an experienced elder law attorney. Additionally, if there is any question about how trust funds can be used, a trustee of a special needs trust should remain in consultation with an elder law attorney.
If you have questions about whether or not a special needs trust may be appropriate for you or a loved one, please call Martha C. Brown and Associates at (314) 962-0186.