What is a Special Needs Trust?
One way a trust can be established for an individual with disabilities is through a Special Needs Trust. A Special Needs Trust is funded with assets of the disabled individual. Often these trusts come into play following an inheritance or a litigation settlement such as a personal injury settlement or a medical malpractice settlement.
What are the limitations of a Special Needs Trust?
A Special Needs Trust can be set up by a parent, grandparent guardian or through a court order for a person under the age of 65. The trust can continue beyond the age of 65, but additions to the trust after the age of 65 may cause ineligibility for public benefits. Most importantly, the trust must provide that, upon the death of the disabled individual the trust will pay back the governmental assistance to the extent that trust funds remain at the death of the disabled individual. There are also additional requirements for SSI eligibility as well as disclosure requirements of the trustee regarding the terms of the trust.
Pooled Special Needs Trusts.
In many circumstances a Pooled Special Needs Trust can be used which is administered by a Qualified nonprofit organization. By using an existing trust, cost savings can be achieved. The funds of the disabled individual are placed into a separate account administered by the entity.
How do Special Needs Trusts work?
If you or a person you know has a disability, a Special Needs Trusts may be beneficial. This type of trust helps protect assets and also allows the trustee to distribute certain funds for goods and services that are not covered by public benefits programs. Such needs including but are not limited to education, travel, and special medical equipment or procedures. Special Needs Trusts are complicated, and professional guidance is highly recommended to ensure the trust meets the legal requirements and increase the quality of life for you or your loved one.
Supplemental Needs Trust?
While a Special Needs Trust is established with funds of an individual for their own benefit, a Supplemental Needs Trust is set up by someone other than the beneficiary to provide funds for needs that are not covered by the public benefits. Supplemental needs trusts may be created in a will or as a stand-alone trust. Typically, such trusts are used by parents/grandparents for their children/grandchildren who are disabled and heirs that are receiving government benefits for disabilities because they have limited means. The distributions under a Supplemental Needs Trust must be carefully monitored to ensure that they are only used for purposes that complement or supplement the benefits received by the individual.
Special Needs Trusts are sometimes referred to as a “third-party trust” or a “non-payback trust.” Upon death, the funds that remain in the trust are then distributed as directed by the trust document, with no obligations required to compensate the government.
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