Special Needs Trust – A Caregiver’s Guide

Special needs trusts are designed so individuals with disabilities have money for expenditures while maintaining their eligibility for government benefits and services. Families and loved ones set up special needs trusts to ensure that, for the duration of their life, the person with a disability will have funds to enjoy vacations, make purchases beyond necessities, dine at restaurants, and go to movies, plays, ball games, amusement parks, and more. With the special needs trust, the person with a disability remains eligible for Supplemental Security Income (SSI), Medicaid, and more government programs.  

As most loved ones understand, the loss of SSI or Medicaid can be devastating for individuals with disabilities and their families. Some government benefits – including SSI, Medicaid, rent assistance, and Supplemental Nutrition Assistance Program (SNAP) – are only available if a person’s income or assets (e.g., cash, bank account, stocks, bonds, real estate) fall below a certain amount: $2,000 for an individual and $3,000 for a couple. The special needs trust addresses this issue head-on. Any assets placed in a special needs trust enhance the quality of life of the beneficiary while ensuring they remain eligible for benefits. 

This blog details the key considerations when determining whether a special needs trust is right for your loved one with a disability.

What is a special needs trust?

Let’s start with the key terms: The beneficiary is the individual with a disability for whom the trust is created. The grantor creates and funds the trust. The trustee manages the trust on behalf of the beneficiary. 

There are two kinds of special needs trusts:

Self-Directed

A self-directed, or first-party, special needs trust is funded with the beneficiary’s own assets, such as an inheritance or monetary gift. What many people may not understand with this type of trust is that when the beneficiary dies, any remaining funds in a self-directed special needs trust will be used to reimburse the government for benefits received by the individual during their lifetime. In other words, all money left in the trust after the beneficiary dies is paid to the state.

Third-Party

A third-party trust is funded with assets belonging to someone other than the beneficiary, such as parents, grandparents, or other loved ones. It does not require a government payback provision, so any remaining funds can be distributed according to the trust’s terms after the beneficiary’s passing. For example, the trustee might stipulate that any remaining funds be dispersed to either one person (e.g., a family member), one entity (e.g., a nonprofit, such as Bello Machre), or dispersed among a number of people and organizations. 

How does a special needs trust work?

Public benefits do not meet all the needs of individuals with disabilities. Special needs trusts supplement what these benefits provide. However, trust distributions cannot duplicate the public benefits already received by the beneficiary. For example, if the beneficiary receives SSI, which supplements food and shelter costs, the trustee must carefully consider whether it makes sense to use the assets of the trust to pay for food or shelter. And, if the beneficiary receives Medicaid, the trustee shouldn’t use the trust’s assets to pay for covered medical care. 

Trustees must be knowledgeable about the public benefits and services the individual with a disability receives. That way, they can assess the impact of any distribution. Trustees should not make direct distributions to the beneficiary, as those will be counted as income and could impact eligibility. Without impacting government program eligibility, the trustee can use the trust’s assets to pay directly for tuition, fees and books, technology, vacations, memberships, subscriptions, hobbies, pets, vehicles, sporting goods, and medical expenses not covered by government benefits.

Who is eligible?

Anyone under 65 who has been deemed to have a disability by the Social Security Administration is eligible for a special needs trust.

Setting up a special needs trust

Start by finding a reputable attorney who is very familiar with the different kinds of special needs trusts (third-party and first-party). In Maryland, contact Bello Machre directly for our list of qualified attorneys. Your attorney will help you set up the proper trust to give you peace of mind and ensure that your desires and wishes for your loved one are met.

You’ll also want to write a letter of intent, which familiarizes people with your child and your expectations. While not legally binding, it communicates information to future caregivers, guardians, trustees, and others to help them make important decisions with and on behalf of your loved one. These might include living arrangements, education, employment, meaningful day activities, supports and services, important relationships, medical history/needs, likes and dislikes, and effective ways to work with and support your loved ones. Make sure your attorney reviews your letter to ensure it doesn’t contradict any Will you might have established.   

Special needs trust pitfalls

A special needs trust must be created by a lawyer who has experience in disability and estate planning laws. Too often, we encounter families whose attorneys didn’t fully understand how special needs trusts work or the difference between first- and third-party trusts. Key things to look for in an attorney include:

• Specialty in estate planning and disability laws
• Solid understanding of special needs trusts, including deep knowledge of first-party versus third-party trusts
• Past experience creating special needs trusts
• Expertise in how different choices could impact the eligibility of the individual with a disability

Finally, be sure you choose a trustee who you feel confident will administer the trust according to your wishes. This might be a friend, a loved one, or a bank-appointed administrator.

Planning for a future that you won’t be present for is stressful for any family member or loved one of a person with a disability. A special needs trust will give you the peace of mind that your loved one has the resources to obtain the services, opportunities, and support they need to live full, independent, rich lives.

Note:  These are general descriptions, and a variety of criteria and exemptions apply. That is why it is important to consult a knowledgeable advocate or attorney when planning regarding public benefits.

If you’d like to get started with a special needs trust or want to understand how it could benefit you and your loved one, please reach out to Bello Machre. And, if you’re looking for comprehensive information about overall futures and estate planning for your loved one with a disability, please download this planner.