Special Needs Trust

What is a special needs trust?

A special needs trust protects the assets of those that are mentally or physically unable to use the property entrusted to them by another. Special needs trust typically exist to allow the special needs person to qualify for Medicaid benefits, which they would otherwise not be eligible due to a significant level of assets. A person would be ineligible for benefits if they held assets in excess of $2,000 or $3,000 if the applicant is married.

Who will likely need a special needs trust?

Individuals with significant mental and physical disabilities will typically require a special needs trust. This includes those that have been injured and are now disabled as a result of that injury. The special needs trust in this case would be used to hold the personal injury settlement until which time the disabled person will be able to enjoy the full benefit of the settlement.

Special needs trusts are specifically referred to as “supplemental needs trust” in the United States and are specifically protected by federal and state laws. An estate and trusts lawyer will be able to set up a supplemental needs trust for individuals that have need of such protection.

How does a special needs trust function?

The special needs trust will require the appointment of a reliable trustee that will manage the assets until the point that the special needs person is able to enjoy the use of those assets. This differs from an official trust which is administered to by the court and will receive very little personal attention. In the event that there are no more trustees remaining, the court will intervene and establish an official trust. The special needs trust will have specific conditions to be followed by the trustee as well as procedure to make the assets available to the beneficiary on a limited basis.

How have special needs trusts been reformed?

Previously, an individual could have transferred all assets into a trust of his or her own creation and received government benefits by exempting those assets from the Medicaid determination. This changed in 1993 with the Omnibus Budget Reconciliation Act which outlawed this form of special needs trust and restricted such agreements to trusts settled by a third party for the benefit of the disabled person. Therefore, all “self-settled trusts” must be counted in determinations for Medicaid, even if the person is disabled and could benefit from Medicaid.

What are types of special needs trusts?

A Miller trust receives the beneficiary assets and uses those assets to pay for medical care. The beneficiary will receive Medicare benefits using this trust and upon the death of the beneficiary, the State will be reimbursed for medical costs from the Miller trust.

A nonprofit pooled income special needs trust provides for the disabled beneficiary through a nonprofit organization which will manage the accounts of several beneficiaries. The investments are pooled and provide for the needs of all of the beneficiaries.

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