Special Needs Trust for Disabled Family Members

The following is from our friends at Dutton & Casey Law Firm...

What is it? A trust is a legal document that provides for the control and distribution of assets. The assets in a trust may be money, stocks, bonds, real estate, business interests, or other possessions. A trust may provide how assets are to be distributed during a person’s life, and also how they are to be distributed after a person’s death. A Special Needs Trust is a type of trust that helps to protect the assets of a person with disabilities. A trust may be set up by one person for another with a disability, to contain an inheritance or gift. A self-funded Special Needs Trust is a trust that contains the assets that had belonged to the person with the disability, who is the beneficiary of the trust. It is designed to have the funds be used to supplement, but not replace, governmental benefits. The Special Needs Trust may be managed by a trustee (someone other than the beneficiary).
The Need

Individuals with disabilities often receive governmental assistance and would benefit from having funds in a trust used to maintain their quality of life. When an individual who receives government benefits also receives money, the government benefits may be jeopardized. This situation may arise when the individual receives a Social Security back payment, a personal injury settlement or an inheritance. Regardless of the source of the funds, once the individual has money in their own name, the government benefits may be at risk. To protect the government benefits, the excess funds can be placed in a Special Needs Trust. A Special Needs Trust is used to supplement, not replace, public benefits such as Supplemental Security Income (SSI) or Medicaid. The trust assets should be used to purchase things that government benefits do not provide, and the Trustee should be aware of the impact of any distribution on government benefits.
What You Need to Know

Even if a trust is properly established and funded, if the Trustee improperly spends the income or principal of the trust, the public benefits of the beneficiary could be reduced or eliminated. The Trustee also should be aware of the tax ramifications of distributions made from the trust. A Trustee should be familiar with investment standards and the expectations for maintaining trust records. The Trustee should be aware of the tax ramifications of distributions made from the trust. A Trustee should be familiar with the types of public benefits available, the actual benefits received by the trust beneficiary and the requirements of the public benefits, such as SSI, SSDI, and Medicaid. The Trustee also should be familiar with other types of assistance for which the beneficiary qualifies, so that the Trustee does not waste trust assets on items that would otherwise be payable by public benefits. The trust assets should be used only to purchase something that cannot be purchased with public benefits and which, if purchased, will not jeopardize the benefits of the beneficiary.