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Special Needs Trusts: A Way to Provide for Your Disabled Child

Many persons with disabilities are receiving or are eligible for means-tested public benefits such as SSI, Medicaid, Section 8 Housing and other benefits. These disabled individuals can only receive these benefits if their income and assets do not exceed certain limits. Special needs trusts enable disabled persons to receive inheritances, equitable distribution, alimony, child support, and personal injury settlements while still remaining eligible for their means-tested benefits.

Third Party Funded Trusts

Third party funded trusts are created and funded by someone other than the individual with disabilities such as the individual’s spouse, a legal guardian or a court. These trusts are often created and funded by relatives whether in their wills or while they are alive. The trust must be written to give the trustee discretion to spend or retain the funds, except the trustee is directed not to spend funds in a manner that reduces government benefits. The trustee will supplement but not supplant government benefits. The person establishing the trust, called the settlor, can direct who will receive any assets that remain at the beneficiary’s death.

This trust cannot be self-funded by the disabled beneficiary. A Third Party Funded Trust is an effective tool but requires advance planning.

Self Settled Trusts

A self-settled special needs trust, also referred to as a (d)(4)(A) trust is established with the assets of the person with the disability. Because this trust was established by statute, the trust must meet very specific criteria.

This trust can be self-funded but not self created. It can be self funded since funds that would otherwise make the individual ineligible for SSI or medical assistance (such as inheritance, life insurance, etc) can be placed in this trust and are no longer considered assets. The trust must be irrevocable and only the individual with disabilities can be a beneficiary. Depending on the circumstances, the trustee can be a family member, a for-profit corporate fiduciary or a non-profit corporate fiduciary.

During the beneficiary’s life, the trust funds are used to supplement but not supplant the benefits received from the government.

At the beneficiary’s death, the commonwealth must be repaid for medical assistance paid by the state for the individual. If there are funds remaining after the state has been repaid the remaining funds can be distributed as the trust dictates.

This trust is usually created as a reaction to the individual receiving funds unexpectedly, such as with an inheritance or personal injury lawsuit.

Pooled Trusts

Pooled trusts were established by statute, the trust must meet the following criteria

This trust can be self-created and self funded. The individual can transfer assets that would make him ineligible into an account at the pooled trust. Once the assets are in the pooled trust, the assets are no longer considered assets. The trust funds can be used throughout the individual’s life to supplement government benefits.

This trust is usually created as a reaction to an individual receiving funds unexpectedly, which would make him ineligible. The account must be pooled which requires a non-profit organization’s involvement but is intended to reduce costs for beneficiaries.

Consult with an attorney who is familiar with special needs trusts so that you are properly advised about which type of trust would work best for your particular situation.

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Boomers Resource Guide is a special supplement to the Senior Citizen's Guide