Trusts come in many different forms and serve many different purposes. For families who have a special needs beneficiary, it is important to consider the use of a special needs trust within the estate plan. A special needs trust, sometimes called supplemental needs trust, is generally created to provide for the needs of a disabled child or adult.
Special needs trusts are flexible and designed to coordinate with disability and medical benefits the beneficiary may receive from governmental sources. They provide supplemental income to pay for services not covered by Medicaid or other public assistance programs. This type of trust can be terminated or changed in order to ensure that the beneficiary remains eligible for other benefits.
If properly created and funded, a special needs trust is treated as an exempt asset for many public benefits, such as Medicaid and SSI (Supplemental Security Income). Many public benefits have very low asset limits, so even a small bequest to a beneficiary receiving certain public benefits could have dire consequences.
By instead directing the bequest to a special needs trust created on behalf of the individual instead of to them directly, they will be able to continue their public benefits and enjoy the added resources from the bequest. This maximizes the resources available to them and helps ensure their care and comfort throughout their lifetime.
Third-Party Funded Special Needs Trust
A third-party special needs trust does not have a “Medicaid payback” requirement like a self-funded special needs trust. If a special needs beneficiary receives the inheritance directly, and then needs to create their own self-funded special needs trust, they will need to include a “Medicaid payback” provision to allow Medicaid to make a claim in the remaining trust funds upon their death.
When a special needs trust is included in the estate plan and receives the assets directly from the estate, it will be considered a third-party funded trust, and the creators of the trust are able to name beneficiaries of their choosing rather than subjecting the funds to Medicaid estate recovery.
For Beneficiaries Without Public Benefits
For beneficiaries without public benefits, a special needs trust can provide a framework for managing the funds provided to a special needs beneficiary. A professional trustee, trusted family member, or friend would manage the funds on behalf of the special needs beneficiary. Trustees are a fiduciary to the beneficiary and are held to a high standard of care in managing the funds within the beneficiary’s best interests.
For more information on special needs trust, contact Attorney Megann S. Hendrix with MacGillis Wiemer, LLC.