What Is a Special Needs Trust Fund?
A special needs trust is a type of trust that is set up to provide financial support for a person with disabilities without disqualifying them from receiving government benefits like Medicaid and Supplemental Security Income (SSI). These programs have strict asset limits, and if a person exceeds those limits, they may lose their benefits and vital services will stop.
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These funds can also be used for supplemental needs not covered by SSI or Medicaid, such as home health care, personal attendants, medical and dental expenses, education, recreation, and vehicles.
There are two types of special needs trusts: first-party and third-party. Both provide general benefits but differ in how they are funded and how assets are transferred from the grantor to the beneficiaries after their death.
First-party SNTs are often created by a parent or other family member for their child with disabilities, although these trusts can also be set up by the beneficiary themselves to receive the proceeds of a lawsuit award or life insurance payout that may affect their government benefits eligibility.
In some states, personal injury awards are the most common source of funding for a first-party SNT. But other assets may be used, including retirement plans, life insurance proceeds, and inheritances.
The benefit of this type of SNT is that a person with disabilities can place their own funds into it and still be eligible for certain SSI and Medicaid benefits. In addition, the individual’s parents or other family members can contribute funds to the trust to be used for a specific purpose, such as paying a caregiver or helping them pay for private school tuition.
Typically, the parent or other family member that creates the trust is the trustee and they oversee the disbursement of funds for the beneficiary’s benefit. A second type of SNT is called a supplemental needs trust, which can be created by a grantor and used to set aside money for the beneficiary’s future supplemental needs, but it does not have an asset limit, so it is generally more flexible than a first-party SNT.
When a first-party SNT beneficiary dies, the remaining assets in the trust are paid back to the state Medicaid agency and Disability Determination Division of Social Services before they are distributed to a contingent beneficiary, such as a sibling or a parent. This means that the assets are not counted as a part of the deceased person’s SSI or Medicaid eligibility, which can help prevent them from losing their benefits.
It’s important to consult a lawyer experienced in setting up special needs trusts and the laws surrounding these programs. An attorney who focuses on these issues will know how to customize an SNT to the unique circumstances of each individual.
In addition, an attorney will be able to explain how to make sure that a child’s inheritances and other resources do not disrupt their eligibility for government benefits. This is especially important if the child’s inheritance will be used for things that are not covered by their public benefits.