What is a special needs trust?

From Our “Ask a Question” Mailbag: “What is a Special Needs Trust? Can I use a Special Needs Trust to protect my special needs child?”

Peter Klenk, Estate Planning Lawyer.

What is a Special Needs Trust?

If you have a loved one with special needs, he or she may be entitled to certain government benefits such as Medicare, Social Security Disability (SSD), Medicaid, and Supplemental Security Income (SSI). An applicant is automatically disqualified from SSI and Medicaid if he or she owns more than $2,000 worth of assets or if the applicant earns too much monthly income. This is known as “means testing.” Medicare and SSD or not means-tested; you can be a billionaire and still be eligible as long as you meet other criteria.

Why are Some Government Programs Means Tested?

The primary purpose of means-tested government programs is to provide basic living expenses for people with disabilities. But what if you want to provide additional financial assistance and security for a disabled family member but still maintain eligibility for government assistance? Fortunately, there are ways we can help you plan for that.

Options to Provide for a Special Needs Person.

One way is setting up an ABLE account [link]. An ABLE account is a relatively quick and inexpensive way to provide extra resources for your disabled loved one without causing a disqualification.

ABLE accounts have their limitations. A more flexible method is creating a Special Needs Trust, also known as a Supplemental Needs or a Supplemental Care Trust. These are highly customizable planning tools used to shelter a disabled person’s assets to maintain eligibility for government assistance as well as enhancing his or her quality of life with supplemental care paid for by the trust funds.

Types of Special Needs Trusts.

They come in two main types; self-settled or third-party settled.

A Self-Settled Trust holds any assets formerly belonging to the beneficiary. This is true even if the beneficiary did not sign the paperwork.

For instance, Rosa and Mark have a son, James, who sustains a traumatic brain injury in a car accident. If James receives a monetary settlement or verdict from a lawsuit, he may automatically lose eligibility for SSI and Medicaid. Rosa and Mark can create a Self-Settled Special Needs Trust for the benefit of James, funded by the lawsuit proceeds. The trustee can enhance James’ quality of life while maintaining eligibility for assistance from the government.

Here’s another scenario: Steven is a single adult diagnosed with a degenerative illness. Before his illness disables him, he can create a Self-Settled Special Needs Trust for his own benefit using his own funds. When he later becomes disabled, he can live off the proceeds while ensuring eligibility for SSI and Medicaid. Steven has the foresight to protect his future in a challenging and emotional time.

Third Party Special Needs Trusts.

A Third-Party Settled Special Needs Trust is funded by assets that never belonged to the beneficiary. Parents commonly create these trusts for the benefit of disabled children. A Third-Party Settled, Special Needs Trust, can either be created during your lifetime (known as “living trust” or “inter vivos trust”) or through particular provisions in your Will [link] (known as a “testamentary trust”).

Which Type of Special Needs Trust is Best for my Child?

Both Self-Settled and Third-Party Trusts are extremely valuable planning tools. Both provide disabled beneficiaries support without disqualifying him or her from Medicaid and SSI. The attorneys at Klenk Law are well-versed in drafting all types of Special Needs Trusts. We customize the plan to fit your loved one’s specific needs. Give us a call and tell us your story!

More Detail.

For more detailed information about What is a Special Needs Trust, see our main article, “Special Needs Trusts: Everything You Need to Know.” 

In Conclusion: How Best to Help Your Special Needs Person?

I hope you found helpful this short article addressing the question, What is a special needs trust? I have also included some links for more detailed information. If you are curious about Probate, Estate Planning, or other various planning techniques, contact us. Let our Special Needs Planning lawyers help walk you through what can be a confusing process. In fact, feel free to contact our office for a free consultation. 

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Attorney Andrew Barron wrote this article.