If you are thinking about drafting an estate plan and have a family member with a chronic illness or special needs, then the discussion with the attorney should include the benefits of having a special needs trust. Before you have this conversation, you should have a basic understanding of what a special needs trust is and can do for your family member.
A special needs trust or supplemental needs trust is a specific trust plan that was given official legal status by the federal government in 1993. It is designed to hold an unlimited amount of assets for the benefit of an individual with certain chronic or acquired illnesses, or mental or physical disabilities. These assets are not counted when the individual’s eligibility for governmental benefit programs, such as Medicaid, Supplemental Security Income (SSI), vocational rehabilitation or subsidized housing. Because these governmental benefits are means-tested, the recipient is restricted in the amount of assets the individual has. The trust holds the assets in ways that are generally not counted when determining the eligibility for governmental benefits.
Establishing a special needs trust can be done in one of two ways: the individual creates his own trust, or it is established and funded by a third party. How the trust is established and funded can affect the eligibility of governmental benefit programs. The first method of establishing the trust is where the individual uses his own assets, or those that the individual is entitled to under law, to fund the trust. This is sometimes to referred to as a “self-settled” trust. An example of this would be when a child receives settlement funds following a car accident injury that requires chronic special needs or results in a physical or mental disability, such a traumatic brain injury. The second type is when a family member uses their own earned and saved funds, or those funds pooled together from multiple donors, to provide for the individual’s long-term care. This is referred to as third party trust.
In order to be a valid special needs trust, it must meet certain criteria set forth by Congress. A trust must be irrevocable, meaning that it cannot be modified later. The trust must apply for and have its own separate Federal Identification Number. It cannot use the Social Security Number for the individual, the spouse, or the third party funding the trust. The trust is created to benefit an individual under the age of 65. Finally, the individual is disabled according to Social Security standards. To learn more about special needs trusts or to create one for your family, contact Melissa Pearce.