What is a Self-Funded Special Needs Trust?
A trust is a legal document that provides for the control and distribution of assets held by a “trustee” for the benefit of another (the “beneficiary”). The assets in a trust may be money, stocks, bonds, real estate, business interests, or other possessions or assets. A trust should provide how assets are to be managed and distributed during the beneficiary’s life, and also how they are to be distributed after that person’s death.
A special needs trust is a type of trust designed to protect the assets of a person with a disability. A self-funded special needs trust must be created by a parent, grandparent, legal guardian, or court to receive and hold assets (such as inheritance, lawsuit settlement, gifts) that belonged to the person with the disability, who is the beneficiary of the trust. The trust should direct the trustee to use the trust funds to supplement, but not replace, public benefits of the beneficiary. The special needs trust must be managed by a trustee who is someone other than the beneficiary.
Individuals with disabilities who receive public benefits would benefit from having funds in a trust used to maintain their quality of life. When an individual who receives public benefits also receives money, the public benefits may be jeopardized. This situation may arise when the individual receives a personal injury or divorce settlement, an inheritance, or other funds. Regardless of the source of the funds, once the individual has money in his or her own name, the public benefits may be at risk. To protect the public benefits, the excess funds can be placed in a special needs trust. This type of trust is used to supplement, not replace, public benefits such as Supplemental Security Income (SSI) or Medicaid. The trust assets should be used to purchase things that public benefits do not provide, and the trustee should be aware of the impact of any distribution on public benefits.
What You Need to Know
Even if a trust is properly established and funded, if the trustee improperly spends the income or principal of the trust, the public benefits of the beneficiary could be reduced or eliminated. The trust must be used solely for the benefit of the person with a disability. A trustee should be familiar with investment standards and the expectations for maintaining trust records. The trustee should also be aware of the tax ramifications of distributions made from the trust.
A special needs trustee should be familiar with the types of public benefits available, the actual benefits received by the trust beneficiary, and the requirements of the public benefits programs, such as SSI and Medicaid. The trustee should also be familiar with other types of assistance for which the beneficiary qualifies, such as Social Security Disability Insurance (SSDI) and Medicare, so that the trustee does not waste trust assets on items that would otherwise be payable by public benefits. The trust assets should be used only to purchase something that cannot be purchased with public benefits and which, if purchased, will not jeopardize the benefits of the beneficiary.
Administration of a Special Needs Trust
Individuals with disabilities often receive governmental assistance to maintain their quality of life. A special needs trust is used to supplement, not replace, public benefits such as SSI or Medicaid. The trustee of a special needs trust spends the funds within the trust for the benefit of the beneficiary of the trust, while carefully considering and monitoring the impact of such expenditures on the beneficiary’s entitlement to public benefits.
Where to Go For Help
Public benefit rules and regulations are very complex, and trusts of this type involve tax issues. Therefore, you should be cautious when determining who will administer a trust of this type. Involving a competent professional is important to make sure that the various regulations are met. Many Elder Law attorneys have substantial experience and expertise concerning special needs trusts.
This information is provided as a public service and is not intended as legal advice. Such advice should be obtained from a qualified Elder and Special Needs Law attorney.
Members of the National Academy of Elder Law Attorneys are experienced Elder and Special Needs Law attorneys. Visit the website, and click on “Find an Attorney.”