What Is a Special Needs Trust?

A special needs trust is a legal arrangement that allows a physically or mentally impaired or chronically ill person to obtain income without jeopardizing their eligibility for disability payments from Social Security, Supplemental Security Income, Medicare, or Medicaid. Special needs trusts are also a fiduciary relationship. Fiduciaries are people who manage the assets or property of another person. Fiduciaries must always act in the best interest of and in agreement with the trust.

Who Needs A Special Needs Trust?

People with disabilities can need different types of long-term assistance. However, since Medicaid offers benefits only to people who have very limited income and resources, a special needs trust can benefit individuals:

  • with lifelong special needs or disabilities
  • who already qualify for governmental benefits
  • who have special needs but may not qualify for governmental benefits in the future
  • who are unable to handle their finances on their own

What Are the Benefits of a Special Needs Trust?

A special needs trust is intended to provide funds for a disabled person while ensuring their eligibility for essential government benefits. Special needs trusts work especially well for parents of disabled children because the trust owns and manages the trust assets, rather than the child, This prevents the child’s eligibility for Supplemental Security Income (SSI) and Medicaid medical coverage from becoming jeopardized.

How Does A Special Needs Trust Work?

Special Needs Trusts generally involve three parties, the grantor, the beneficiary, and the trustee. 

  • The grantor is the person who is creating the trust, contributes the assets, and determines how the trust should be managed.
  • The beneficiary is the individual, group, or organization the trust fund has been established for.
  • The trustee is a neutral third party entrusted to manage trust.

What Are the Responsibilities of the Trustee?

The trustee of a special needs trust has full control over the trust’s assets and is responsible for spending money on the beneficiary’s behalf. Since the beneficiary has no control over the funds

SSI and Medicaid administrators will disregard the trust property for program eligibility purposes. This legal arrangement continues until the trust is no longer required, which can occur when the beneficiary dies or when the trust funds are depleted. The responsibilities of the trustee include:

  • Managing and investing trust funds responsibly, in compliance with the terms of the trust and state law.
  • Spend trust funds only for the benefit of the beneficiary and maintain careful records of all transactions.
  • Prepare and file required SSI and Medicaid reports, federal trust tax returns, and state trust tax returns.

The trustee can also oversee terminating the trust if the beneficiary no longer requires government benefits, is no longer eligible for them, or the value of the trust assets has dropped to the point that it is make sense to keep managing the trust.

How Can Trust Funds Be Spent?

The special needs trustee cannot give money directly to the beneficiary or use funds to pay expenses covered by public assistance payments, which include certain food, clothing, and shelter expenses. The trust funds can be used to meet the beneficiary’s other financial needs, such as out-of-pocket medical expenses, personal care fees, and transportation costs.

Establishing a special needs trust can be beneficial to both the recipient and the grantor. While beneficiaries can access financial assistance without jeopardizing their eligibility for income-restricted programs or services, the individual or party who establishes the trust has some guarantee that the funds will be used for the purposes they specify.

For More Information About Special Needs Trusts

Schedule a confidential consultation to discuss your situation with us and learn how our expertise could help you or your loved one. Please send an email to gparisi@pandslaw.com or call us at (914) 228-7448 to schedule an in-person, phone, or video appointment.

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