If a person with special needs has assets -- perhaps from a lawsuit award or settlement or from a gift or inheritance – those assets can disqualify the person from receiving essential public benefits like Medicaid and Supplemental Security Income (SSI). A special needs trust can allow the person with special needs – the trust’s beneficiary -- to remain eligible for needs-based public benefits while at the same time preserving the assets to enhance the beneficiary’s quality of life.
Special needs trusts are intended to supplement, not replace, the kind of basic support that programs like Medicaid and SSI provide. Such trusts pay for anything the trust document provides for, including comforts and luxuries that meager public assistance funds don't cover -- hence the term “special needs.” A special needs trust has been likened to a “parent's pocket” -- that is, it pays for the kinds of things that a parent would just reach into his or her pocket to cover. These trusts typically pay for amenities beyond the simple necessities of life, things like education, recreation, counseling, and medical attention.
Funds held in a properly drafted special needs trust should not affect a Medicaid or SSI recipient’s benefits. But problems can develop when funds from a special needs trust are spent. Because the rules are very complicated, it is best to always sit down with your special needs planner to discuss what you intend to do with your trust before making any payments to anyone.
There are two main types of special needs trusts: first-party and third-party trusts. First-party (or “self-settled”) trusts are used when the trust assets belong to the person with special needs, perhaps from an award or settlement. Third-party trusts are generally used when a parent or guardian wishes to establish and fund a trust for the benefit of the person with special needs, usually a minor child. A third kind of trust, a “pooled trust,” contains the funds of many people with special needs and may be appropriate for some people.
A qualified special needs planner can walk you through the pros and cons of each type of trust and help you to properly establish one.
For more on special needs trusts, see: "The Top 7 Reasons to Establish a Special Needs Trust" and "What Can a Special Needs Trust Pay For?"
This information is not intended to be a substitute for specific individualized tax, legal or estate planning advice as individual situations will vary. Neither Royal Alliance Associates, Inc., nor its registered representatives or employees, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.
Securities and investment advisory services offered through Royal Alliance Associates, Inc. member FINRA/SIPC. Royal Alliance Associates, Inc. is separately owned and other entities and/or marketing names, products or services referenced here are independent of Royal Alliance Associates, Inc. Special needs consulting services are not offered through Royal Alliance Associates, Inc.
Content provided by the Academy of Special Needs Planners, Copyright 2016