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Eric Smith, Barbur Laskey

Special Needs Trust – One Option to Help Care for a Loved One with a Disability

| Eric Smith, Barbur Laskey

If you have been providing for a loved one with a disability, you’ve no doubt spent countless hours thinking about what will happen when you’re no longer able to give that care. Oftentimes, loved ones with a disability rely on various forms of public assistance, such as Social Security Disability Income, SSI, Medicare, low-income housing, and other programs, to meet their basic needs. Eligibility for some public programs, such as Medicare and Social Security Disability Income, is based on the person meeting certain “status” criteria, such as age or disability. Other public programs, such as SSI and Medicaid, offer “needs-based” benefits that also require specific limits on assets and income.

Of course, you can leave your property to your loved ones with a disability, but doing so without any careful planning can jeopardize your loved one’s ability to qualify and receive some of these needed benefits that he or she may be relying on to help meet his or her basic needs. These benefits simply will not be available to your loved one until he or she spends down the inheritance. With a little forethought and planning, the inheritance your loved one receives can enhance their quality of life and maintain essential public benefits that are designed to provide for only the most basic needs.

The type of trust most often used to assist a beneficiary with a disability and protect his or her eligibility for public benefits is commonly called a special needs trust or supplemental needs trust. The idea behind the special needs trust is to establish a supplemental source of funds that may be available to improve or enhance the quality of the beneficiary’s life without using trust funds primarily for support of the beneficiary. In other words, the trust funds are used to supplement, not replace, certain public benefits that are available to the beneficiary.

First-party special needs trusts, which may also be referred to as “payback” trusts, are established using property that is transferred from the beneficiary. This type of trust is often used when an individual with a disability receives an inheritance, settlement, or award from the court. It can also be used when an individual becomes disabled later in life but had obtained assets prior to the disability. Upon the death of the beneficiary, the trust must reimburse the state from the remaining trust assets up to the amount of total medical assistance paid on behalf of the beneficiary under the state Medicaid plan.

Third-party special needs trusts are established with property belonging to someone other than the beneficiary – a third party. Most discussions on third-party special needs trusts involve a parent or grandparent who wants to leave property to a child or grandchild with a disability. The primary advantage of the third-party special needs trust is that there is no payback requirement, so the property can be left to anyone by the creator of the trust upon the trust’s termination.

Pooled special needs trust are established and administered by nonprofit organizations. The idea behind pooled trusts is that individual beneficiaries create an account within the larger established trust and all the assets are pooled, or combined, so that they can be efficiently and professionally managed and have better investment options.

Special needs trusts are an important planning tool for individuals with a disability. Give us a call if you have any questions regarding special needs trusts or you want to discuss what the best fit for your situation is.