Special needs trusts primarily provide benefits to a disabled individual over and above those provided by Medicaid and Social Security Income. Special needs trusts also avoid disqualifying the beneficiary from receiving Medicaid and Social Security benefits. This feature makes a special needs trust extremely popular for parents with disabled children who wish to provide for children even after their death. The rules stating which assets make someone ineligible for government benefits are sometimes difficult to interpret, so anyone considering a special needs trust should reach out to an experienced estate planning attorney.
If the trust is created with the assets of a parent or other relative, then the “settlor” (person creating the trust) must follow the rules established by the Social Security Administration to avoid having the trust assets considered as available to the disabled beneficiary. Therefore, a special needs trust is one that limits the trustee’s discretion in trust distributions. Typically, a special needs trust has language stating distributions from the trust serve only “supplemental” purposes rather than acting as the primary source of income for the disabled individual.
The biggest factor in determining whether the trust will be considered an available asset is whether the trust was created by the property of a third party to benefit the individual or was created using the assets of the individual. The assets in a special needs trust should not be considered as available assets to a disabled trust beneficiary if the trust is being created with property of a third party and there is language in the trust that the distributions are to be a supplement and not a replacement of benefits.
If you have questions or concerns with an estate planning issue of your own, please call us at (402) 827-7000.