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Special Needs Trust: How to financially plan for special needs individuals

Caring for a loved one with special needs can be both challenging and rewarding. When it comes to finances, it’s important to understand your options and determine the best resources for the unique needs and situation of the recipient.

Two primary sources of government assistance

The two primary sources of government aid for individuals with special needs are Social Security Income (SSI) and Medicaid. Both programs are based on the relative financial needs of the special needs individual. So other sources of income, assets, or an inheritance could render the individual ineligible for benefits under these programs.

While it is often the case that having a job, or additional resources, can provide an individual with special needs a level of self-sufficiency, activity, and opportunity that is vital to both their emotional and physical well-being, it’s vital to know the SSI and Medicaid financial parameters and methods available to preserve both the valuable government benefits and any supplemental support.

Differences between Social Security Income (SSI) and Medicaid

Social Security Income is paid out for the direct benefit of an adult (under age 65) or child whose disability and level of financial resources qualifies them for benefits. This income is intended to fulfill the basic daily needs of the individual including food, clothing, housing, and education. Medicaid covers healthcare costs for disabled individuals who qualify if their monthly income, and total assets remain below a certain level. (Medicaid’s maximum asset ownership limit is $2,000 in most states).

Both SSI and Medicaid are need-based, so proper administration of supplemental funds is critical. As a general rule, those who qualify for Social Security Income automatically qualify for Medicaid as well.

How a trust can help you

A trust, specifically, a Special Needs Trust, can be a valuable tool used to control other family assets set aside for the benefit, care, and comfort of disabled individuals. This often includes medically necessary item which may not be fully covered by Medicaid like glasses or contact lenses, hearing aids, in-home health care assistants, dental care, special technology and computer equipment, and vehicle enhancements or transportation. These costly items can be beyond the reach of someone solely dependent on SSI and Medicaid benefits.

There are two basic types of Special Needs Trusts:

  • Self-settled Trust: funded with assets originally belonging to disabled person (e.g., proceeds from a personal injury award)
  • Third-party Trusts: funded by others via gifts or inheritance

In both cases, it is imperative that the disabled individual does not have direct unrestricted access to the assets or income generated by the trust. Instead, a “Trustee(s)” must be appointed. The Trustee(s) has a duty to manage the funds, purchase necessary items and secure services for the beneficiary, and has ultimate discretion over how the funds are applied for the benefit of the individual receiving care.

Self-settled Special Needs Trusts are governed by Federal law and must strictly comply with all statutory requirements. In most cases, when the beneficiary of the trust passes away, there is an obligation to pay back Medicaid from the remaining trust assets for long-term care expenses. Under certain conditions, family members may be entitled to any remaining residual funds after reimbursements to Medicaid have been made.

Third-party Special Needs Trusts are equally complex. Yet, if drafted properly, pay back of long- term care expenses may be avoided. Ultimately, any remaining assets may then be distributed to successor beneficiaries regardless of a disability status. 

Working with a professional

The most important things to remember when considering a Special Needs Trust is to work with a financial professional and qualified attorney who specialize in the field and are well versed in the rules governing benefits for disabled individuals and individuals with special needs. Establishing a Special Needs Trusts for the benefit of someone close to you will have a significant financial impact on their lives.


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