Frequently Asked Questions
What is a Special Needs Trust?
A special needs trust (SNT), sometimes referred to as a supplemental needs trust, is a legal vehicle designed to benefit an individual who has a disability. An SNT enables a person under a physical or mental disability, or an individual with a chronic or acquired illness, to have an unlimited amount of assets held in Trust for his or her benefit. Those assets are not considered countable assets for purposes of qualification for certain needs-based governmental benefits. Such benefits may include Supplemental Security Income (SSI), Medicaid, vocational rehabilitation, subsidized housing, and other benefits based upon need.
Why Establish a Special Needs Trust?
- To preserve eligibility for Medicaid. Medicaid, a joint federal-state program, provides medical assistance to those who are disabled and can demonstrate financial need. Children and adults can qualify for Medicaid only if their monthly income and the value of their other assets fall below certain limits, which vary from state to state. A special needs trust restricts the beneficiary’s own direct access to the assets in the trust to such an extent that the assets are not considered legally available to the beneficiary. Thus, a special needs trust can protect Medicaid eligibility because assets in the trust are uncountable.
- To preserve eligibility for Supplemental Security Income (SSI). Children and adults with special needs who have limited income and resources often receive monthly benefits from Supplemental Security Income (SSI). These cash benefits can be used for basic needs such as housing and food. But because SSI benefits are need-based, inheriting money can mean that a child with special needs will lose their eligibility for this benefit program. By naming a special needs trust as your beneficiary instead of your child, however, assets can be devoted to the care of your loved one. In addition, since SSI recipients are normally automatically eligible for Medicaid benefits, preserving your child’s eligibility for SSI may preserve their eligibility for Medicaid as well.
- To provide additional care and services. A special needs trust can be especially useful if you want to provide care and services necessary for your child’s well-being, without supplanting Medicaid benefits. Although Medicaid pays for a number of medical costs, including hospital bills, physician services, and long-term care, it will not subsidize items and services considered nonessential. These may include health-related expenses such as eyeglasses, dental care, rehabilitation services, and home health aide services, as well as personal expenses such as transportation, computer equipment and vacations.
How Many Types of Special Needs Trusts Are There?
There are two general types of Special Needs Trusts: Self-Settled, which are funded with assets belonging to the beneficiary; and Third-Party, which are funded with assets belonging to someone other than the beneficiary.
- First Party Special Needs Trusts. A first party, or self-settled, SNT is created with assets belonging to an individual with disabilities, who becomes the “beneficiary.” Such funds typically consist of a personal injury settlement or inheritance. The person must be under 65 at the time that the trust is established. Funds remaining in the trust at the beneficiary’s death must be used to reimburse Medicaid for services to that individual before they can be distributed to anyone else.
- Third-Party Special Needs Trusts. A Third-Party Special Needs Trusts is created with assets belonging to someone other than an individual with disabilities. Upon the beneficiary’s death, there is no requirement to use funds remaining in the trust at the beneficiary’s death to reimburse Medicaid for services provided to the individual, and “remainder” beneficiaries may be named to receive those assets.
- Pooled Special Needs Trusts. A pooled Special Needs Trust serves the same function as the other types of Special Needs Trusts, but with several notable differences. A Pooled Trust is established by a not-for-profit organization which most often relies upon social workers, money managers and special needs attorneys to administer the trust. All funds are managed as a pool and may be invested as one account, but sub-accounts are established for each individual beneficiary, and profits and losses, additions, and disbursements from each account are tracked separately. Since many financial institutions do not handle small special needs trusts, or may charge fees that are not cost-effective, pooled trusts give families access to highly skilled trustees.