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Find Out What Types of Trusts Are Appropriate for Your Loved One With Special Needs

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Find Out What Types of Trusts Are Appropriate for Your Loved One With Special Needs

A special needs trust is set up to allow a beneficiary—typically a child or grandchild with special needs—to remain eligible for government disability benefits and Medicaid while still receiving funds from the trust.

While the beneficiary is alive, funds in the trust can be used to enhance their quality of life. Upon their death, any assets remaining may go towards reimbursing the government for the cost of the medical care it provided, depending on the type of trust. These trusts are especially useful for beneficiaries who are receiving Social Security benefits and come into large amounts of money. With a trust in place, the beneficiary can still receive government benefits while using the trust funds when necessary.

There are several different types of trusts that are appropriate for individuals with special needs, but first, it is important to understand how a typical trust works.

Trusts as Estate Planning Tools

A trust is a relationship among three parties:

  • The donor, who provides the funds for the trust
  • The trustee, who holds and administers the funds, following the donor’s wishes for the trust
  • The beneficiary, who benefits from the funds of the trust

Trusts are a popular component of estate planning because they usually survive the death of the donor, offering a low-cost way to continue managing the donor’s assets. A special needs trust is designed to benefit a person with special needs, providing a way to manage assets for that individual while still enabling them to access government benefits. The following are types of special needs trusts.

Discretionary Supplemental Needs Trusts

This trust is created for individuals who are chronically and severely disabled. Government programs for which they may be eligible, including Medicaid, use the resources and income of the individual to determine eligibility for assistance and the amount to which they may be entitled. A supplemental needs trust enables the disabled individual to have funds for other expenses without jeopardizing their government supplements. With this type of trust, there is no need to reimburse the government upon the death of the beneficiary.

Medicaid Payback Trust

This type of trust allows a parent, grandparent, guardian, court, or the individual with a disability (who is also the beneficiary) to establish a trust to be funded with the beneficiary’s own money. These funds are available for the supplemental needs of the individual with special needs without jeopardizing their eligibility for government benefits.

When the beneficiary passes away, any remaining balance in the trust is used to repay state Medicaid agencies for services provided to the beneficiary. Any remaining balance after paying Medicaid claims is distributed to charities or individuals, as specified in the initial agreement.

Pooled Trust

In a pooled trust, a nonprofit organization serves as the trustee. For purposes of investment, all assets are pooled together, although each beneficiary of the trust will have an individual account. Each subaccount is established by the person with a disability, a relative or guardian, or a court, and the assets of the person with special needs fund the trust. This is another type of payback trust, so upon the death of the disabled beneficiary, any leftover funds will go to reimburse the government for expenses.

Supplemental Services Trust

When an inheritance or funds from a personal injury case are awarded to an individual with a disability, they can use these funds if they are placed in a supplemental services trust. They can still qualify for Medicaid benefits, despite the settlement. These trusts are set up so that the funds are not considered to belong to the beneficiary; thus, the funds will not jeopardize eligibility for government services.

Regardless of the type of special needs trust you create, these funds cannot be used to provide basic support—such as medical care, food, and shelter—to individuals. Instead, the money can be used to pay for enrichment activities, special schools, travel, recreation, counseling, and other “extras.”

Talk to an experienced lawyer about your goals, so you can make the right choice about a trust to benefit your loved one with special needs. Please contact us today to schedule a complimentary initial consultation.

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