Why would you create a Special Needs Trust?
A special needs trust is created to coordinate with governmental benefits so that a person receiving governmental benefits can continue to have access to funds that will help them throughout their lives. Supplemental Security Income (SSI) is a benefit program that allows an individual to accumulate up to $2,000.00 in assets without losing SSI benefits. An SSI recipient is automatically eligible for Medicaid.
A Third-Party Trust
A Third-party trust is a trust that is set up by a third party to provide income for the disabled beneficiary who is also receiving SSI Benefits. The trust funds do not belong to the beneficiary but may be disbursed to the beneficiary by the trustee.
After the beneficiary dies, the trust funds may be directed to other beneficiaries and do not have to reimburse Medicaid. Medicaid is not reimbursed because the trust funds originally came from a third party and not the recipient. This trust is often set up by parents or grandparents of a child who may receive governmental benefits such as SSI presently or in the future.
A First-Party Trust
A first-party trust is a trust that must be created for funds that belong to the SSI recipient. The funds deposited into the trust belong to the beneficiary and therefore have to be paid back to Medicaid in the event that the beneficiary dies with assets remaining in the trust. This type of trust is generally created when a beneficiary receives a direct inheritance or a lump sum settlement from a lawsuit and the beneficiary does not want to lose Medicaid or SSI benefits.
A Pooled Trust
A pooled trust is similar to a first-party trust that must be created for funds belonging to the SSI recipient. The pooled trust exists to pool many disabled person’s assets and is administered by a professional manager and social workers who are responsible for disbursing funds to the beneficiaries in compliance with the rules of the trust.
Like the first-party trust, the funds in the trust would have to be paid back to Medicaid in the event that the beneficiary dies with assets remaining in the trust.
Practical tip
An ABLEs account allows for the SSI recipient to hold additional funds outside either a first party or third party Special Needs Trust. See my previous blog post -- The SSI recipient and the value of an ABLE Account (massprobatelawyer.com)
Consult a lawyer to create a special needs trust to make sure that if possible, funds which are intended to supplement the support of a person receiving SSI do not go directly to the recipient, but instead are earmarked to be deposited into a Special Needs Trust for the benefit of that individual.
If you would like a free initial consultation to discuss creating your personalized estate plan, please contact the Law Offices of Martin I. Flax, P.C. at flaxlaw@gmail.com.