Posted in Triplett & Carothers on December 3, 2021

If you need to provide for someone who’s physically or mentally disabled or chronically ill but don’t want to jeopardize his or her public assistance disability benefits, creating a special needs trust is a popular strategy. Usually, such programs as Social Security Supplemental Security Income, Medicare, and Medicaid impose an income or asset ceiling. However, money put in a special needs trust doesn’t count toward the ceiling.

Assets held in a special needs trust are required to be used for medical expenses, payments for caretakers, and transportation costs. When you create the trust, you’ll designate a trustee who will oversee its management and funds disbursement. Assets provided by a third party are not subject to Medicaid’s repayment rules, and that’s why a special needs trust is often called a supplemental needs trust.

If you decide to create a trust, contact a legal representative, and draft the document carefully. The goal is to ensure that the disabled person and his or her caretakers spend the money you use to fund the trust on the expenses you stipulate in the trust instrument. Because these trusts are used by individuals with a wide range of mental and physical disabilities, you have broad latitude in designating what those expenses may be.

There are two types of trusts:

• A third-party trust allows you and other family members and friends to leave an inheritance, especially if your special needs individual is a child. No assets belonging to the special needs beneficiary are used to fund the trust. If it is funded with sufficient assets, such a trust can provide for lifelong needs.
• A first-party supplemental needs trust is funded with assets or income from the beneficiary, who must be under the age of 65 when the trust is created and funded. Medicaid will be reimbursed upon the beneficiary’s death or upon termination of the trust, whichever occurs first. Funding may come from child support, a personal injury settlement, or an outright inheritance from a well-meaning family member who doesn’t understand that the gift could disqualify the special needs individual from receiving benefits. The transfer of funds creates no look-back period or ineligibility period for Medicaid nursing home benefits.

The trustee who is chosen should be sensitive to the special needs of the beneficiary, actively monitoring any services provided, prudently investing trust assets, and using them for the individual whom the trust is intended for. It’s common for a professional corporate trustee and an individual to serve as trustees together.

Special needs trusts are irrevocable, so neither creditors nor winners of lawsuits can access funds designated for the beneficiary. Parents and guardians especially can be assured regarding the future care and well-being of their special needs child.

Of course, this is just a quick summary of a complex trust that needs to be customized for each individual. If you think you need a trust for yourself or a loved one …

Reach out to Roz Carothers and her team at Triplett & Carothers to learn more.

©2021