A Special Needs Trust is a Valuable Estate Planning and Investment Tool


There is much confusion over the function of a Special Needs Trust.  Special Needs Trusts (sometimes referred to as Supplemental Needs Trusts) are designed to provide benefits to, and protect the assets of, physically disabled or mentally disabled persons while still allowing them to be qualified for and receive governmental health care benefits, especially long-term nursing care benefits, under the Medicaid program.

 

There are actually two different types of Special Needs Trusts.  The first type, often referred to as a Third Party Special Needs Trust, is created by a friend or relative of the person with special needs to hold gifts or inheritances for that individual.  The funds in the Third Party Special Needs Trust are not considered a resource of the person with special needs, therefore allowing the person to continue to qualify for Medicaid benefits.  The Third Party Special Needs Trust can be established at any time, but usually is created early in a child’s life as a long term means for holding assets to benefit the disabled family member.

 

The second type, often referred to as a First Party Special Needs Trust or D4A Trust, is frequently used to receive personal injury litigation proceeds on behalf of a disabled person in order to allow the person to continue to qualify for Medicaid benefits.  This Trust can be established at any time before the beneficiary’s 65th birthday.

 

The Special Needs Trust must be part of any parent’s estate planning tools when he or she has a child with special needs.  As a part of Estate Planning, the costs of the creation of the Trust are tax deductible.

 

A Third Party Special Needs Trust that is funded by parents or other third party sources will not be required to pay back Medicaid.  However, a First Party Special Needs Trust, which is funded by a personal injury Settlement or otherwise from the person with special needs own assets, will be required to pay back Medicaid when the child dies.

 

The only assets within the Trust that are subject to the repayment obligation are those assets which originally belonged to the disabled individual him or herself that are transferred into the Trust (i.e. assets such as earnings from a job, savings, certain Social Security back payments, personal injury recoveries, and the like).  At the individual’s death, the Trust is liable for an amount equal to the Medicaid used during the lifetime of the disabled or chronically ill individual.  It is not uncommon for a Trustee or a disabled individual to ask a court to direct certain assets into the Trust.

 

The cost for not creating the proper Special Needs Trust is for assets to be used before Medicaid will be accessible by the person with special needs and that the assets will not then be available for those expenditures that are not otherwise covered by Medicaid.  This is a quality of life issue, i.e., how to help someone’s life be better and still receive all appropriate government help.

-->
Call Now Button
Call Us Now