Special Needs Trust

All parents want to make sure they provide for their children after they are gone. However, parents of individuals who are mentally disabled, suffer from chronic illness, or require government assistance for any other reason have extra considerations. A special needs trust allows parents and other family members in this situation to prepare for the care of a loved one without impacting the person’s eligibility to means-tested government benefits. Talk to a special needs trust attorney in Texas or Florida by calling Fleurinord Law, PLLC, at (888) 904-2297.

What Is a Special Needs Trust?

A special needs trust provides funding to supplement government benefits, enabling the recipient to cover a variety of expenses for improved quality of life. The person who receives the benefits is called the beneficiary and the person who establishes the trust (usually a parent or guardian) is the grantor. Also involved is a trustee, who is responsible for managing the account in the best interest of the beneficiary.

A grantor establishing a special needs trust often makes it a priority to set up the trust in such a way that the beneficiary can receive financial support without losing eligibility to benefits like Medicaid, Security Supplemental Income (SSI), and Social Security.

According to the United States Social Security Administration, individuals can only receive SSI if their countable resources are worth less than $2,000, and this type of restriction should be taken into account. Because most grantors are not experts in the regulations governing means-tested eligibility, many prefer to work with a special needs trust attorney through a firm like Fleurinord Law, PLLC, to help ensure that the trust does not accidentally jeopardize the beneficiary’s access to essential resources.

What Are the Benefits of a Special Needs Trust?

There are several reasons why setting up a special needs trust can be beneficial to a loved one. As already mentioned, one of these reasons is that a properly established special needs trust enables family members to leave funds without risking the beneficiary’s eligibility for other assistance. In addition, there are fewer restrictions on how the beneficiary of a special needs trust may use the funds, compared to government benefits. However, the grantor can specify whether there are any activities for which the beneficiary cannot use funds. The trustee who administers the fund will then have fiduciary responsibility, acting in the best interest of the beneficiary. A family member is often named as trustee, but it is also possible to appoint a professional.

One last reason many families consider establishing this type of trust is that a special needs trust is irrevocable. Not only does this mean that no one other than the beneficiary has the right to modify, amend, or terminate the trust, it also means creditors cannot seize the trust.

Types of Special Needs Trusts

The two main types of special needs trusts are first-party and third-party. They differ in who owns the property that funds the trust. In addition, though, there are a couple of less common options that some potential grantors may wish to consider.

First-Party Special Needs Trusts

Also called a self-settled trust, a first-party special needs trust is established using the beneficiary’s own assets. This is a common option for setting up a trust for an individual who purchased property before becoming disabled, has inherited property, or has received a court-mandated settlement, such as a personal injury, divorce, or workers’ compensation settlement.

United States laws governing financial liability and State medical assistance require that the beneficiary of a self-settled trust must be under the age of 65 when the trust is created. Furthermore, the trustee must use any assets that remain in the trust to reimburse the state for Medicaid benefits upon the death of the beneficiary.

Third-Party Special Needs Trusts

More common is a third-party special needs trust, as this type of trust is established using the funds of someone other than the beneficiary, often the parents of the individual. Funds may come from inheritance, gifts, or life insurance proceeds. If the beneficiary has any assets, these cannot be used to fund a third-party special needs trust.

A benefit to this type of special needs trust is that it is possible to have other beneficiaries in addition to the primary beneficiary, which means the trust can protect assets for other members of the family. This is possible because there is no requirement to reimburse the state for Medicaid benefits.

Pooled Special Needs Trusts

Nonprofit organizations sometimes create trusts for beneficiaries called pooled special needs trusts or D4C trusts. Assets come from various sources and are invested. The beneficiaries then receive an amount based on how much they or their family members have contributed to the pool. This option may be suitable for family members who have insufficient funds to provide their loved ones with the financial support they will need.

There can be several advantages to pooled special needs trusts over first- and third-party special needs trusts. For instance, they often take less time to establish, cost considerably less in administrative fees, and provide beneficiaries with a knowledgeable nonprofit trustee.

ABLE Account

An alternative option is to set up an ABLE account. The Social Security Administration explains that these are based on the Achieving a Better Life Experience Act of 2014 and are available in both Texas and Florida. Although they are not technically trusts, the distribution rules are much the same. The accounts are similar to 529 college savings plans––so much so that they are often called 529 ABLE accounts.

Owned by the beneficiary, accounts are funded with after-tax dollars and have several tax benefits. Grantors can contribute up to $15,000 a year, although the beneficiary may lose SSI benefits if the total in the account exceeds $100,000. One important difference between ABLE accounts and special needs trusts is the state will receive any funds that remain in the account upon the death of the beneficiary.

Receiving Support from a Special Needs Trust Attorney

If you are considering a special needs trust to benefit someone you love, you have already invested substantial thought in making the decisions that will give them the best possible chance at a happy, healthy life––both now and in the future. However, you may still find it helpful to work with an attorney who is familiar with the complexities of a special needs trust to ensure your loved one receives unencumbered financial support after you are gone. Call (888) 904-2297 and to an experienced special needs trust attorney at Fleurinord Law, PLLC, today.