Protecting financial resources through a special needs trust

| Nov 12, 2020 | Trusts

Many people in Connecticut will rely on public assistance benefits, such as Medicaid, to pay for their health care needs should they become disabled. However, to qualify for such benefits, a person must have few assets and a low income. To avoid impoverishing themselves just for the purpose of qualification for benefits, some people choose to execute a special needs trust.

What is a special needs trust?

A special needs trust, also referred to as a supplemental needs trust, is an estate planning document that creates a fiduciary relationship in which a person has a physical or mental illness or a person who is permanently disabled can access funds in the trust to pay for their financial needs per the terms of the trust without losing any public assistance benefits they may be receiving. Special needs trusts are irrevocable.

A special needs trust will name a trustee who oversees the management and disbursement of trust funds. While the assets belonging to the beneficiary of the trust that are transferred to the trust are still subjected to Medicaid repayment rules, if a third party places assets in the trust do are not.

Why is it prudent to execute a special needs trust?

Public assistance programs are generally based on need, meaning they are only available to those with a nominal amount of income and assets. However, funds placed in a special needs trust are not counted towards the qualification of public assistance benefits.

Funds in a special needs trust cannot be used to purchase food or shelter. However, they can be used to pay for medical expenses, pay for caretakers, transportation expenses and other types of expenses.

Special needs trusts are complex estate planning documents

Special needs trusts are legally complex estate planning documents. They must be explicitly and carefully worded to ensure they are valid and enforceable. A poorly drafted trust could cause assets to count towards the purposes of qualifying for public assistance benefits. For this reason, many people interested in special needs trust will first discuss their situation with an attorney before proceeding.