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May 15, 2024

Special Needs Trusts

By: Marissa Cerkoney

Parents and caretakers of individuals with disabilities are aware of the vital role they play in the medical, emotional, and financial needs of the disabled individual. Generally, when it comes to estate planning, those parents and caretakers want to continue providing for the disabled individual after their deaths. However, leaving assets to a disabled individual can jeopardize the ability to receive government benefits that the individual is entitled to, such as Supplemental Security Income (SSI) and Medicaid. The creation of a special needs trust is a way in which funds can be distributed to a disabled individual without that individual losing eligibility for essential government benefits.

By creating a special needs trust, those needs-based government benefits can still be used as the primary source of the funding for the special needs of the disabled individual, while allowing the assets in the special needs trust to be used as a secondary, supplemental source. In other words, the distributions from the special needs trust for the disabled individual will be used to pay for special needs that are not covered by government programs.

The special needs of a disabled individual include not only their medical and health-care related needs, but also those quality-of-life needs that are specific to the individual. Once the government programs to which the individual is entitled have provided goods and services, then the assets of the special needs trust will kick in to fund the additional special needs of the disabled individual. Those special needs can include the following:

• Medical costs not covered by other programs
• Home care services not covered by other programs
• The payment for home repairs and improvements
• The purchase and maintenance of a customized vehicle
• Educational and training opportunities
• Recreational and vocational activities

There are two main types of special needs trusts:

• First-party (or self-settled) special needs trusts
• Third-party special needs trusts

The main difference between a first-party special needs trust and a third-party special needs trust is in the source of the assets used to fund the trust. First-party special needs trusts are funded with the disabled individual’s own assets or assets to which the disabled individual would have been entitled to (i.e., assets from a court settlement). Third-party special needs trusts are funded with another’s assets, such as those of a parent, grandparent, or other third party. Here are some examples to demonstrate the difference:

• First-party special needs trust: A disabled individual (on Medicaid) receives an inheritance of $20,000 from his deceased mother. Those funds would take the disabled person off Medicaid as Medicaid has a $3,000.00 asset qualification limit (among other requirements). However, the inherited funds can be placed into a first-party special needs trust that will allow the beneficiary (the disabled individual) to receive the use of these funds during his lifetime. When the disabled individual dies, the funds in the first-party special needs trust are used to “pay back” the state/government for the benefits he received.

• Third-party special needs trust: Here, instead of the disabled individual receiving an inheritance of $20,000.00 from his deceased mother, she left the inheritance to a third-party special needs trust. The funds in the third-party special needs trust can be spent to help supplement the disabled individual’s government benefits during his lifetime. Unlike the first-party special needs trust, when the disabled individual dies, the assets in the third-party special needs trust do not go to the government but can instead go to wherever the deceased mother wanted the funds to go (such as to the disabled individual’s siblings).

Special needs trust can generally be established in a few different ways. A special needs trust can be established during your lifetime as a stand-alone trust. Another option is to have the special needs trust set up through your last will and testament so that the inheritance for the disabled individual is created when you die; however, this generally requires that the inheritance go through the probate process to fund the special needs trust. If probate avoidance is a goal of yours, a third option is to have the special needs trust be established and funded through a revocable living trust. With there being a number of ways to create a special needs trust, it is beneficial to discuss your options with an attorney to see which route is best for you.

The Takeaway:

Special needs trusts are a great way to protect assets for a disabled individual while allowing them to remain eligible for government benefits. A special needs trust can add to the beneficiary’s quality of life by providing money needed for care beyond Medicaid and other government benefits, while also providing life’s extras such as paying for the beneficiary to go to the movies, attend sporting events, and taking a vacation. Implementing a special needs trust into your estate planning also can provide you with peace of mind knowing your disabled loved one is provided for without taking them off their government benefits, such as SSI and Medicaid.

If you want to leave money or property to a loved one with a disability, seek the help of a skilled estate planning attorney that is knowledgeable and has experience with creating special needs trusts. Consider contacting Marissa Cerkoney at Ebeltoft . Sickler . Lawyers to assist you in creating a special needs trust and other types of estate planning matters.

(Otherwise known as “the fine print”)

I make a serious effort to be accurate in my writings. These articles are not exhaustive treatises, though, so do not consider them complete or authoritative. Providing this information to you does not create an attorney-client relationship with my firm or me. Do not act upon the contents of this or of any article on our homepage or consider it a replacement for professional advice.