Estate Planning for People with Disabilities - The Special Needs Trust
What is a trust?
A trust is a legal document that directs the management and distribution
of assets. Many people with disabilities benefit from trusts
because they provide financial resources without compromising eligibility
for public benefits. The person or entity creating or funding the
trust is the grantor. The person who receives the benefit,
or on whose behalf the trust is created, is the beneficiary.
The grantor appoints a trustee which can be a person(s) or
an entity such as a bank to manage the trust and distribute the trust’s
assets/funds for the benefit of the beneficiary.
Special Needs Trust
A special needs trust, sometimes called a supplemental needs trust,
provides financial resources for people with disabilities. By
establishing a special needs trust, financial assets are preserved and
protected and those assets are not counted against the individual in
determining eligibility for public benefits like Supplemental Security
Income (SSI), Medicaid, and subsidized housing. In addition to
preserving eligibility, the funds in the trust can be used to purchase
things beyond what public benefits may pay for like assistive technology,
clothing, and entertainment.
Types of Trusts
There are three types of special needs trusts and each has specific provisions and/or limitations.
A first party trust is one in which the beneficiary's own
assets are used to create the trust. This will often be appropriate
when the beneficiary has received an inheritance or a court settlement
that would otherwise disqualify him/her from government benefits. The
government benefits will be preserved as long as:
- The beneficiary is under the age of 65.
- The disability meets the definition/standards of the Social Security Administration.
- The trust specifies it is for the personal benefit of the beneficiary.
- The trust is established by a parent, grandparent, legal guardian, or a court.
The trust contains a Medicaid payback provision, which means that
after the beneficiary dies, the state will receive all amounts
remaining in the trust up to the amount that was paid out by
Medicaid for health care expenses.
A third party trust is one for which assets are provided
by someone other than the beneficiary. Typically a parent or
grandparent establishes the trust to specifically preserve the
beneficiary's eligibility for government benefits. As with the
first party trust, the age and disability definition apply.
However, the trust is not required to include a Medicaid payback
provision and may include instructions for the allocation of leftover
assets upon the beneficiary's death.
A pooled trust is established and administered by an
organization, typically a nonprofit, to manage and disburse the assets
of many individuals' special needs trusts. Each person has an
individual account. If an individual with a disability enters a
pooled trust with his/her own resources to create the trust, it must
generally meet the requirements of a first party trust, except for the
age requirement; thus the pooled trust is the only special needs trust
that can be established for a person with a disability age 65 or over.
A principal benefit of a pooled trust is that it will handle
small accounts, so people with modest assets have access to
sophisticated trust services since the pooled trust takes care of
accounting, tax preparation, investment decisions, and serves as the
trustee. For Fairfax County residents, pooled trusts are
administered by The Arc of
Northern Virginia and The Commonwealth Community Trust.
What expenses can special needs trusts cover?
It is important to remember that the trustee has absolute discretion in the disbursement of funds and those disbursements must be for the personal benefit of the beneficiary. Because the purpose of the trust is to provide supplemental support, any funds spent for basic needs could result in a reduction of government benefits.
Among other things, the funds of a special needs trust can be spent for the following:
- Transportation (car expenses, bus fare, etc.);
- Rehabilitation and therapy;
- Case management;
- Health insurance premiums;
- Dental care;
- Companion care;
- Durable medical equipment;
- Entertainment; and
Personal care items.
How to establish a trust
Special needs trusts are legal documents with very specific wording. They should be prepared by a qualified trust attorney who has experience in these types of trusts. If you need assistance finding an attorney, the Fairfax Bar Association has a referral program.