What is a special needs trust?

Also known as a ‘supplemental needs trust,’ a special needs trust is a private funding source that covers life’s “extras” for a person with disabilities. This trust is managed by a trustee, who manages the account and has the best interests of the beneficiary in mind.

The funds from a special needs trust are meant to act in addition to public benefits that cover shelter, food, clothing, and health care. A special needs trust provides for supplemental items for the beneficiary, like wheelchairs, handicap-accessible vehicles and beds, the purchase of a home, and attendant or helper, and recreational activities and interests. These items and services are normally not provided through public benefits.

What do I need to consider when setting up a special needs trust?

• While there is no time limit for establishing a special needs trust, it is important to be proactive in planning for the future well-being of a disabled person and not wait until the last minute.
• Trusts can be fixed by friends through the Probate Court, or by a family member.
• There is no minimum amount needed to establish a special needs trust.
• Be sure to consult with an attorney before establishing a special needs trust to ensure you understand how public benefits may be affected. The experienced attorneys of Margerie Law are here to help!

What are the different types of special needs trusts?

There are two types of special needs trusts: first-party and third-party.

A first-party special needs trust may be called a “payback trust,” “self-settled trust,” or a “D4A trust,” and is provided for by the beneficiary’s own money. This can be income from a legal settlement, inheritance, alimony, or other sources. Public benefits that cover housing, food, clothing, and health care often have a low asset limit (usually around $2,000 in total assets). Often, if a disabled beneficiary receives a lump sum of money, they are disqualified from receiving public benefits, making a special needs trust crucial to their future wellbeing.

A third-party special needs trust is created and funded by a person other than the beneficiary of the trust – often a parent, grandparent, or friend. When a special needs trust is set up by a third party, the public benefits received by the beneficiary will not be affected. Gifts to a third-party trust can be given throughout the life of the beneficiary, and the funder can name the trust in their will, ensuring contributions for the beneficiary even after the death of the funder.

What is covered by SSI and Medicaid? How are they different from a special needs trust?

SSI, which stands for Supplemental Security Income, is a federal supplemental income program aimed at those who are disabled and/or elderly with limited assets (below $2,000 total) and low or no income. SSI funding assists with covering basic needs, such as shelter, food, and clothing.

Medicaid is a federal health care coverage program for those with limited assets and little to no income.

Both of these are federal programs that cover life’s basic needs – shelter, food, clothing, and health care. A special needs trust is set up by a private citizen and is meant to cover costs in excess of these basics.

Will my child have control of a special needs trust I set up for them?

No. When you set up a special needs trust for a child or family member, you will appoint a trustee, who manages the trust and how the funds are spent. If the beneficiary were to have access to the funds in the trust (such as in a first-party trust), this would disqualify them from receiving public benefits because it would increase their overall assets.

What does a trustee do and how do I choose the right person?

The trustee of a special needs fund is the person responsible for managing the trust’s funds. This includes distributing money, investing, and overseeing the trust. The person setting up the trust has the responsibility of choosing a trustee.

The right trustee acts as an advocate who knows and understands the beneficiary’s situation and has their best interests in mind. The trustee should be a responsible person who makes good investment decisions and understands money management. Finally, a trustee is in charge of keeping records for the trust and making fund distributions that are permissible and will not negatively affect the beneficiary’s receipt of public benefits.

What is a payback trust?

A “payback trust,” another name for a first-party trust, is a trust in which the funding usually comes from inheritance or a legal settlement. If the beneficiary of a payback trust still receives public benefits, the amount in the trust remaining after the death of the beneficiary would go to reimburse the government for these benefits. A third-party trust, one established by someone other than the beneficiary, has no such payback requirements.

For questions about special needs trusts, contact the experienced attorneys of Margerie Law today. Give us a call: (414) 254-4784.