Special Needs Trusts
Special needs trusts can enhance the lives of disabled individuals that receive Medicaid or Supplemental Security Income (SSI). The purpose of the trust is to improve the quality of the beneficiary’s life without disqualifying him or her from public benefits. The rules for administration of a special needs trust and the form of the trust agreement itself vary depending upon the source of the assets placed in the trust. If the assets are contributed by someone other than the disabled individual, then the trust is referred to as a “third-party settled” trust. If the assets placed in trust belong to the disabled individual (often from the settlement of a personal injury claim or through an inheritance), then the trust is referred to as a “self-settled” trust.
One of the most important distinctions between a self-settled special needs trust and a third-party settled special needs trust is the disposition of any remaining trust assets when the beneficiary dies. Self-settled trusts are known as “payback” trusts because any remaining trust assets must be used first to reimburse the Human Services Department for the Medicaid benefits paid for the benefit of the disabled individual. Any assets remaining after the pay-back is made can be distributed to the disabled individual’s heirs or other beneficiaries. The pay-back requirement does not applied to third-party settled trusts.
Funds in either kind of special needs trust can be used to pay for goods and services that public benefit programs do not provide, which are the disabled individual’s special or supplemental needs. Such expenditures include phone, cable and internet services, car insurance, maintenance and gas, pre-paid funeral or burial arrangements, travel and entertainment, household furniture, television, computer or therapy expenses or medical equipment not covered by Medicaid. The list of acceptable expenditures can go on and on and it is easy to see how these items can improve the life of an individual who lives at the poverty level.