Special needs trusts represent an effective means to help a loved one without them potentially losing eligibility for programs that mandate income levels at a certain limit. Specifically, it allows someone who is physical challenges, mentally disabled, or chronically ill to receive income for public assistance disability benefits from Social Security, Supplemental Security Income (SSI), or Medicaid.
This type of trust is used to pay medical costs, caretaker services, transportation expenses, and other financial needs not provided by public assistance. Regardless of the amount of money in the trust, it does not count when qualifying. In addition, creditors or someone gaining a victory in a lawsuit does not have access.
The grantor establishes the special needs trust and designates a trustee to oversee it and provide necessary funds. All of these steps must be taken prior to the beneficiary’s 65th birthday.
Other types of special needs trusts
Another form of special needs trust is a supplemental needs trust that involves a third party. Being that it belongs to someone else, the beneficiary’s funds may not be used in this type of trust. Instead, the trust receives funds via gifts, inheritances, and life insurance proceeds.
Many special needs trusts are self-funded by the disabled person who puts their own money in while still remaining eligible for certain SSI and Medicaid benefits. Only the beneficiary’s assets can fund this type of trust. While third-party contributions are not subject to Medicaid repayment rules, self-funding could be subject to government mandates.
Establishing a special needs trust sooner rather than later provides peace of mind for the disabled recipient and loved ones who pitch in to ensure the best quality of life possible.