What is a Special Needs Trust?

A trust is a means by which one person the grantor) gives money or other assets to a second person (the trustee) for the benefit of a third person (the beneficiary). A special needs trust is a particular kind of trust in which family members(spouses, parents, grandparents, etc.) and other persons who care about an individual with a disability are the grantors, who give assets to a trustee (who may be the same person as the grantor) to use for the person with the disability (the beneficiary). The advantage of a special needs trust is that, no matter how much money or other assets the trust holds, the beneficiary will not be disqualified from receiving public benefits, such as SSI (supplemental security income), Medicaid, food stamps or housing assistance, or nursing home care. Such public benefits do not pay enough to lift the individual out of poverty or near poverty. A special needs trust can hold any amount of money, and pay for items such as:

• Personal care attendants
• Education
• Transportation
• Entertainment
• Work-related expenses
• Travel

In addition to protecting the individual's right to public benefits, a special needs trust also provides for money management, control distributions, and provides creditor protection for the trust beneficiary.

A special needs trust is the answer for parents who are concerned about the financial needs of their child upon their own death, or a spouse whose husband or wife resides in a nursing home. If a will leaves money outright to a disabled person, the sum will disqualify him or her from Medicaid or other public benefits that have strict income and resource limits. If, however, the will leaves assets to a special needs trust set up for the person with the disability, s/he remains eligible for Medicaid and other public benefits, and has the advantage of additional financial support for the rest of his/her life.

A special needs trust can be set up as a stand-alone trust during the grantor's life, or can be set up through the grantor's will. The advantage of setting up the special needs trust as a stand-alone document is that anyone can contribute to it at any time. At the grantor's death, there will be a record of how the assets were used, so that successor trustees know how the grantor wanted the trust distributed. At the death of the individual with a disability, any remaining assets can be distributed to family members or others.

A special needs trust can also be set up with the assets of the person with the disability, such as settlements from personal injury lawsuits. Such trusts are called "self-settled" special needs trusts because they are funded with the assets of the disabled individual herself. The rules that apply to these kinds of trusts are somewhat different, the biggest difference being that any assets remaining at the death of the individual with the disability must be used to pay back the government for Medicaid benefits received. However, assets in the trust will not count to disqualify an individual from receiving public benefits during her lifetime.