Sunday, April 20, 2014
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Special Needs Trusts

Millions of families in the United States have at least one family member with special needs. Special needs include, but are not limited to, disabilities caused by accident or injury such as paralysis, visual and/or auditory impairment, or permanent mental disorders. A Special Needs Trust (SNT) allows a person with disabilities to receive benefits from governmental programs, such as Supplemental Security Income (SSI) and Medicaid while also having another source of funds to pay for additional benefits the government programs do not provide. A properly designed and administered Special Needs Trust will supplement a disabled person’s government benefits, without jeopardizing eligibility for government aid, particularly SSI and Medicaid. The reason for this is because federal law allows money to be placed into an SNT and it is not a countable resource for purposes of qualifying for needs based public assistance programs. Special Needs Trusts are authorized by Federal law, at 42 USC §1396p (d)(4)(A).

What are some basic types of Special Needs Trusts?
Self-Settled Trust. This trust is funded with the disabled person's own assets. When the disabled person dies, any remaining funds in the Self-Settled Trust must be used to repay the state for any Medicaid benefits the person received during his or her lifetime. The advantage of this type of trust is that it allows the Trustee to conserve assets of the beneficiary while at the same time immediately qualifying the beneficiary for all public benefits for which the beneficiary can medically qualify. The disadvantage, of course, is that upon the beneficiary's death any remaining funds will need to be used to pay off the Medicaid lien and this can conflict with family wishes that the remaining money benefit family members, charities, etc.

Third-Party Trust. This trust is funded with assets from someone other than the disabled person, such as a parent, that can be created in a will, revocable living trust, or a stand alone trust. The benefit of this type of special needs trust is that If funds remain following the death of the disabled person, they do not pass to the state but instead or distributed to the remainder beneficiaries chosen by the person who created the trust. However, the disadvantage of the Third-Party Trust is that it cannot be created with any property which belonged to the disabled beneficiary. Such property must be placed in a Self-Settled Trust.

What are some basic rules of Special Needs Trusts?
If the trust is intended to supplement, rather than replace, government benefits, it must be properly drafted. Although requirements vary according to state law and the type of Special Needs Trust being established, here are some of the rules that apply to Special Needs Trusts in general:
  • Generally, only a parent, grandparent, legal guardian, or court can set up a Special Needs Trust.
  • Funds in the Special Needs Trust may not be available to the disabled beneficiary.
  • The beneficiary cannot revoke the trust.
  • The individual with special needs must be considered "permanently and totally disabled" under SSI criteria.
  • Distributions cannot be made directly to the beneficiary.
  • Special Needs Trusts may be established as part of a will (known as a testamentary trust) or during the creator's lifetime (known as a living or inter vivos trust).
  • Special needs trusts can hold an unlimited amount of funds and can be added to at any time.
For more information on how Evolve can help with a Special Needs Trust contact:

Andy Cook
Toll Free: 866.367.2611
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