A special needs trust is a specific kind of trust that can be created to benefit children and adults with disabilities. Whether you’re caring for a special needs child or have a family member who has developed a medical problem and needs a trust to ensure their financial safety, there are several kinds of several needs trusts available to you. However, special needs trusts differ by state, and each state has different rules that apply.

Type 1: Family Trust. A family trust is usually created by the parents of a child with disabilities. These trusts can be testamentary, meaning they are created through the parent’s last will and testament, or living  or “inter vivos” trusts, meaning the parents create it while they are still alive. Family trust property, however, usually cannot be used for basic needs such as housing or food, as this may interfere with government benefits from Social Security and Medicaid.

Type 2: Pooled Trust. A pooled trust is one created by a non-profit agency for the benefit of an individual with special needs and funded by family members or, in some cases, with the individual’s funds.  The individual’s family, such as grandparents, aunts or uncles, can place property in the trust, but the family does not have the same type of control over the assets as with a Family Trust.

Type 3: Court Ordered Trust. Also called a “first-party” special needs trust, these can only be established by a court, a legal guardian, or a parent or grandparent of a person with disabilities. In these trusts, the person with disabilities actually owns the trust property, but the person must be under 65.

The Potter Law Firm is a member of the American Academy of Estate Planning Attorneys.

Living Trusts are becoming more common in Estate Planning, and these can include Special Needs Trusts to help take care of a disabled loved one.

What may people don’t take into account, however, is that a Special Needs Trust must be drafted carefully to avoid interfering with the disabled person’s eligibility for government benefits such as Medicaid or Social Security benefits.

When it comes to Medicaid, the government determines eligibility based on income and asset limits.  Income is pretty straightforward.  But when it comes to assets there are “countable” assets, such as real estate, cash, and mutual funds, and there are “exempt” assets, such as a home, a personal vehicle, and personal items.

If there’s a Special Needs Trust for a disabled person in place, do the disbursements (or care or special health-care equipment provided) from the Trust affect that person’s Medicaid eligibility?

Well, it can get complicated.  With one type of Special Needs Trust called a “general support” Trust, the funds from the Trust are considered by the government to be countable assets – so this could affect the disabled person’s Medicaid eligibility.

With another type of Special Needs Trust, a “supplemental care” Trust, the Trust’s assets are viewed as a supplement to government benefits so they are not counted as assets.

Those who want to give a cash gift to a disabled person should also beware: While your intentions may be good – and the gift may be below your annual exemption – that gift is a countable asset in the hands of the disabled person, and may affect Medicaid eligibility.  On the other hand, there is a “stand by” supplemental care option where gifts, if placed in that Trust, may not affect the disabled person’s eligibility.

As you can see, a properly-drafted Special Needs Trust can have great benefits for your loved one, but an improperly-drafted trust can have negative consequences for the beneficiary that you may not have expected.  Plus, laws and government regulations change on a regular basis.  These are solid reasons to consult with an attorney trained in Trusts and Special Needs Trusts if you are considering a Trust for a loved one.

The Potter Law Firm is a member of the American Academy of Estate Planning Attorneys.

Do you have a loved one with special needs?  If you plan to leave assets to your loved one, it is important to plan carefully.  With the help of a special needs trust, you can leave assets to your loved one without disqualifying him or her from important benefits.  Here are some common questions regarding special needs trusts:

What is a special needs trust?

This type of trust is specifically made to benefit mentally ill or disabled beneficiaries.  With a special needs trust, you can leave assets to your loved one without disqualifying your loved one from receiving government benefits.

When creating a special needs trust, you will appoint a trustee to help manage the assets.   It is important to appoint a trustworthy and caring individual to ensure that your loved one receives the care that he or she needs.

How does a special needs trust work?

The trust assets can be used to pay for your loved one’s vacations and recreational activities. Typically trust assets are used to pay for everything above and beyond what governmental assistance covers.

Your loved one will benefit from your care and support and still be able to qualify for government benefits.

Is my loved one able to access the trust directly?

No, only a trustee is able to access the trust.

Should I work with an attorney when creating a special needs trust?

Because of the special laws and wording related to special needs trust, you will want to make sure your trust is legal and accurate; an experienced estate planning attorney can help with that.

If you have questions about special needs trusts, consult with a qualified estate planning attorney.

The Potter Law Firm is a member of the American Academy of Estate Planning Attorneys.