Estate and trust planning are often challenging tasks.  Throw in a special needs trust?  And things just get more complicated.

Special needs trusts are legal relationships where a physically, mentally, or chronically ill person can receive income without generally reducing any public financial assistance, such as Social Security, Medicaid, or Supplemental Security Income (SSI)

Keep reading to learn more about special needs trusts.

special needs trust

How do special needs trusts work?

A special needs trust holds assets that don’t count towards income limitations when qualifying for or receiving public assistance benefits. The assets in special needs trusts are typically used for medical and health care costs, including payment for caregivers.

The grantor designates a trustee. The trustee then controls the trust while overseeing the disbursement of assets. 

Special needs trusts are irrevocable, meaning the individual who created the trust (the “grantor”) cannot change the trust after creation. Further, creditors cannot access the trust’s assets.

Self-Funded or First-Person Special Needs Trust

In self-funded or first-person special needs trusts, the beneficiary’s own money and other assets are placed into the trust itself.  However, the assets of this type of special needs trust are considered for Medicaid’s repayment rules.

Third-Party Special Needs Trust

Some special needs trusts are funded with life insurance proceeds or inheritances.  These trusts are called third-party special needs or supplemental needs trusts. 

Unlike first-person special needs trusts, these types of trusts are not considered for Medicaid’s repayment rules.

Who benefits from a special needs trust?

Special needs trusts can benefit a variety of people, such as:

  • Someone who is unable to manage their own finances
  • Someone with temporary or permanent special physical or mental needs
  • Someone who may be eligible for either SSDI or Medicaid
  • Someone who currently receives SSDI or Medicaid

What are the benefits of a special needs trust?

Special needs trusts can benefit all parties. For example, the beneficiary receives necessary financial support for medical and general living expenses. Additionally, the beneficiary can still enjoy governmental benefits such as SSDI, Medicaid, or Social Security.

On the other hand, the person managing the trust has the peace of mind that the trust’s assets will go to these necessary expenses. 

Additionally, the trust’s assets are not within the reach of creditors, including paying any court judgments.

What are the drawbacks of a special needs trust?

One of the primary drawbacks for special needs trusts include the lack of independence of the beneficiairy.  Additionally, as we mentioned above, some special needs are subject to the Medicaid payback rules.

Further, the costs of special needs trusts can be high – from setting up the trust to managing it year over year. To financially plan for a special needs trust, meeting with an experienced estate planning lawyer can help you walk through the necessary steps.

Why Retain Losavio & DeJean, LLC?

We know that talking about estate planning issues can be complicated, causing stress and confusion. At Losavio & DeJean, LLC, we are committed to providing empathetic and compassionate legal counsel. When you work with us, your needs come first.

Contact us today to learn more.