Understanding Special Needs Trusts

by Rebecca Auriemma

A Special Needs Trust is a legal arrangement that provides financial support for people with disabilities or special needs without jeopardizing their eligibility for government benefits like Medicaid or Supplemental Security Income (SSI).  These Trusts are a great way to provide financial security for your loved ones with Special Needs.

Preserving Benefits:

One of the key reasons for setting up a Special Needs Trusts is to allow individuals with disabilities to received inheritances, legal settlements, or other assets without losing their eligibility for means-tested benefits like SSI and Medicaid.

• Types of Special Needs Trusts:

  • First-Party (Self-Settled) SNT: This type of Special Needs Trust is funded with the disabled individual’s own assets, such as an inheritance or personal injury settlement. These trusts often have a Medicaid payback provision, meaning that after the beneficiary’s death, Medicaid must be reimbursed for the benefits provided during their lifetime.
  • Third-Party SNT: This type of Special Needs Trust is funded by someone other than the beneficiary, typically a parent, grandparent, or other family member.  These Trusts do not require Medicaid payback and are usually part of estate planning.

How does a Special Needs Trust Work?

Special Needs Trusts function like similar to other types of Trusts.  Special Needs Trusts include a Grantor (Settlor), Trustee, and Beneficiary.  They provide a way to manage and protect assets for the benefit of someone else.  Special Needs Trusts are also a great tool to avoid probate.

• Role of the Trustee:

  The trustee manages the assets in the trust, and makes distributions to meet the beneficiary’s needs without violating benefit eligibility. The trustee has fiduciary responsibilities and must ensure that funds are used appropriately.

• Permissible Expenses:

  The funds in a Special Needs Trusts can cover expenses that are not typically covered by public assistance, they may include:

  • Out of Pocket Medical and dental expenses
  • Eyeglasses
  • Maintenance of vehicles
  • Insurance (including premium payments)
  • Rehabilitation
  • Materials for a hobby or recreational activity
  • A computer or other electronic equipment
  • Education and therapy
  • Travel and entertainment
  • Goods and services that add enjoyment to life, including furniture, television, etc.
  • Personal care attendants
  • Assistive technology

Who Should Consider Setting up a Special Needs Trust? 

• Beneficiaries of Legal Settlements
• Families with Disabled Children or Adults

What are the Benefits of Setting up a Special Needs Trust? 

• Maintains Eligibility for Government Programs:  Keeping assets in a Special Needs Trust ensures that the beneficiary does not exceed asset limits for Medicaid or SSI.
• Long-Term Financial Support: The trust ensures that funds are properly managed, with the trustee making distributions as needed through out the beneficiary’s life.
• Flexibility and Control: A third-party Special Needs Trust offers family members a way to manage and protect their loved one’s inheritance or other funds.
• Peace of Mind: Families can rest easy knowing that their loved one will have financial resources available after their death, with a trusted individual managing the funds responsibly.

Special Needs Trusts are a critical tool in estate planning for individuals with disabilities.  Please consult with legal and financial professionals to create a plan tailored to your family’s unique needs. Call Lifescape Elder Care Law & Estate Planning for more information, (816) 291-4143.