What is a Special Needs Trust?
A special needs trust is a trust that allows for a disabled individual to remain eligible for public benefits (like Medicaid or Social Security) and still have funds held for their benefit in a trust account.
What type of Special Needs Trust do I need?
There are two basic types of special needs trust first party and third party.
- First Party Special Needs Trusts are created either by the disabled individual, a parent, grandparent, guardian, or the court. It is funded with money that is owned by the disabled individual either through wages or by an award from a court case. These trusts require that after the disabled individual dies that Medicaid be repaid before any funds are distributed to any other beneficiaries.
- Third Party Special Needs Trusts are created for a disabled beneficiary by the parent, grandparent, guardian, or the court. These are funded with money of someone other than the disabled beneficiary. It is administered much the same but Medicaid is not required to be paid back after the disabled individual dies.
What can a Special Needs Trust pay for?
The quick answer to this question is anything the beneficiary wants for personal use that is not in the category of food or shelter (support expenses). If the trust pays for food or shelter the funds in the trust are considered as an available resource of the beneficiary.
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Are there planning options for smaller amounts of money?
Yes, sometimes beneficiaries are left smaller amounts of money it would be burdensome to individually administer a trust. There are two options available, a pooled special needs trust or an ABLE account.
- Pooled Special Needs Trusts are trusts that can be created either with third-party funds or first party funds where the Trustee is a Non-profit organization and the funds are pooled for the purpose of investment but each trust is managed individually. This is ideal for small settlements or inheritances as it allows for a larger return on investment.
- An ABLE Accounts is a type of account that can be used to save funds for qualified disability expenses of the account’s designated beneficiary, while allowing that individual to preserve eligibility for public benefits. The account must be for a person who was diagnosed with their disability prior to the age of 26. The account can hold a maximum of $100,000.00 and the deposits are limited to $15,000.00 per year. It is a great option for beneficiaries who have the ability to manage their own funds.