Trusts and Estates

Taking Care: Disabilities & Special Needs Trust Options

Making a long-term plan to meet the needs of a child or relative with disabilities takes hard work and advance planning. Quality of life, care and opportunities often mean making best use of public and private resources. No single resource is likely to meet all needs.

special needs trust is one way to preserve and manage private assets for a disabled person's use. Get started by learning basic special needs trust types and how they work with public programs.

Stay Eligible for Public Programs

There are valuable government benefit programs many disabled people rely on to cover the basics of food, shelter and medical care. Public help is just one part of the resource patchwork many people need to create a reasonable quality of life and living standard. However, it's key to make sure someone stays eligible for these public programs.

Private financial resources alone could leave a disabled person with a poor quality of life and care. Contrast this to estate and financial planning, and the legal structure of a trust: The same private resources are used to go beyond the basics, giving someone in need good quality of life and care.

SSI for Covering Basic Needs and the Gateway to Benefits

The Supplemental Security Income (SSI) program is administered by the Social Security Administration. It provides benefits to disabled individuals with limited resources. SSI payments average about $400 per month and must be spent on food, clothing and shelter expenses.

To qualify for SSI benefits, a disabled adult can't hold more than $2,000 in assets. A car and a home aren't included in this calculation of assets.

SSI eligibility qualifies a disabled person to also receive food stamps and Medicaid. Medicaid pays for medical expenses, nursing home care and mental health services. Medicaid eligibility in turn is the benchmark for a person to receive many other local community services.

Social Security Disability Insurance (SSDI) also provides disability payments for those with insured status, meaning someone gained enough work credits to qualify for the program.

Special Needs Trust Options

One size doesn't fit all, and there are several kinds of special needs trusts to choose from. All share the basic form of a trust: a donor transfers property to a trustee, who owns, holds and uses the property on behalf of a beneficiary. The beneficiary stays eligible for public programs because he or she doesn't own or control the trust property. Trust types are:

  • First-party trust. The person with special needs or a disability uses his or her own assets to create the trust. The donor/owner may have held the assets before becoming disabled, or received them by inheritance or in a personal injury lawsuit.

    A disabled person needs a parent, grandparent or a court to create the trust, which is funded with the person's assets, and he or she is the trust's beneficiary. Trust funds are used for the disabled person's needs, and he or she keeps SSI eligibility. At death, leftover trust funds repay the government for the beneficiary's medical care.

  • Third-party trust. Donors, usually the parents or close relatives of a disabled person, create a special needs trust with their property to pay for any extras not covered by public benefits. The donor decides on trust terms for paying out trust assets when the special needs beneficiary dies. For example, a parent could leave trust assets to other children or grandchildren, or a charity.

    Some people use this trust option for more complex planning, too. For example, someone may want to preserve assets for a disabled relative, and protect his or her own eligibility for programs like Medicaid.

  • Pooled trusts. A charity sets up pooled trusts so several beneficiaries can join their assets for investment purposes. Each person has an account, and uses funds for his or her own needs. When someone dies, funds left in the account are shared by the charity and the government to repay benefit expenses.

    Remember, every situation is different, and planning can be complex. An estate planning attorney can best help you review your facts and come up with a plan and the exact trust terms to best serve you and your loved one with special needs.

    Questions for Your Attorney

    • How and when should a special needs trust be created when the funding source is a damages award from a lawsuit?
    • Can I get legal power to do estate planning for a relative who was disabled in an accident?
    • How do special needs trusts work with other estate planning documents, such as a will?
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