A special needs trust, which is sometimes called a supplemental needs trust, is a legal tool that can help to provide for someone who has a disability without putting needs-based benefits at risk. These trusts are commonly used in estate planning by family members, typically parents, who want to leave money or property to their loved one who has special needs.
Medicaid and Supplemental Security Income have strict income and asset limits, so it’s critical for anyone who relies on these government programs to comply with those. If someone is receiving benefits from these programs, they could lose their eligibility if they receive money directly through an inheritance. Using a special needs trust avoids this because the beneficiary doesn’t have control over the trust’s assets.
Once a special needs trust is set up, it can be used in specific ways, but it can’t provide for certain expenses like medical care. Allowable expenses can include those related to recreation, therapy, education, transportation and specific other things related to quality of life.
Types of special needs trusts
One of the first decisions that has to be made when establishing a special needs trust is what type will be set. The two main types are individual or pooled.
An individual special needs trust is set up and managed by a trustee, who can be a relative or a professional. The terms of the trust are customized to meet the beneficiary’s needs, and the trustee is responsible for using funds to support the named beneficiary without having a negative impact on those benefits.
A pooled special needs trust is managed by a nonprofit organization that oversees the assets of multiple beneficiaries in one large fund. While each person has their own account, those accounts are pooled together for investment and management. This is suitable when the individual won’t have enough assets to justify setting up an individual trust because these pooled options are often more cost-effective.
Special needs trusts must meet very specific requirements, which can be challenging. Working with someone familiar with these matters may make this process a bit easier.