Special Needs Trusts

A Special Needs Trust (SNT) can be an important planning tool. As the beneficiary of the trust, a disabled person can have money available for items that can enhance quality of life, while still maintaining eligibility for government benefit programs. The following discussion examines some benefits, disadvantages, and some case examples. We also include a more detailed description of an SNT.

A Special Needs Trust should be considered if you:

• Have received—or anticipate receiving—significant funds, for example, through a personal injury settlement, litigation, a gift, or inheritance; and
• Receive needs-based government benefit programs, such as Supplemental Security Income (SSI) or Medicaid; or
• Are not currently enrolled in these programs, but could benefit from the income and services available through such needs-based government programs.

Certain restrictions are placed on the establishment of an SNT. The trust

• Must be established for the benefit of a person under age 65 who is disabled (as defined by the Social Security law).
• Must be established by a parent, grandparent, legal guardian or court.
• Must have a provision that allows any states that have provided medical assistance to the beneficiary to be paid back from trust assets at the death of the beneficiary.

Benefits of a Special Needs Trust

• Allows you to transfer your assets into the trust without incurring any transfer penalty for the purpose of SSI or Medicaid eligibility.
• Allows you to have funds available for supplemental goods and services without jeopardizing eligibility for government benefit programs that have income or resource limits. Trust assets can be used to purchase equipment and services that are not paid for by benefit programs, but are important to your quality of life.
• Provides a structure for accountability and for managing financial assets to your benefit.
• Allows designation of successor trustees, to assure that there will be an individual or entity responsible for management of the trust assets throughout your lifetime.
• Can be coordinated with other parts of the family's estate plan and designated to receive additional funds, such as inheritances or gifts from family members. This minimizes the risk of your disqualification from government benefit programs due to excess resources.

Disadvantages of a Special Needs Trust

• There are costs involved in establishing and administering the trust.
• You cannot establish the trust (unless it is a pooled trust account); a parent, grandparent, guardian, or court must establish the trust.
• You cannot have direct control of the trust assets (but the trust agreement specifies how the funds are to be used for your benefit).
• Trust distributions that are used to provide food, shelter (including regular housing expenses), or clothing for you can result in a decrease in SSI or other government benefit programs.
• At your death, any state that provided medical assistance to you will have a claim for repayment of those services. (Generally, though, the state payment level is significantly lower than the private pay rate, so you would have paid considerably more for these services if you had not qualified for Medical assistance. SSI is not repaid.)