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What Is A Special Needs Trust?

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What Is A Special Needs Trust?

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 unique or supplemental needs trust is a specific plan the federal government gave official legal status in 1993. It is designed to hold unlimited assets to benefit an individual with certain chronic or acquired illnesses or mental or physical disabilities. These assets are not counted when the individual’s eligibility for government 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 number of assets the individual has. The trust holds the assets in ways generally not counted when determining the eligibility for governmental benefits.

How do I establish a Special Needs Plan?

Establishing a special needs trust can be done in one of two ways: the individual creates their plan or is established and funded by a third party. How the aid is established and financed can affect the eligibility of government benefit programs. The first method of establishing the plan is where the individual uses his assets, or those that the individual is entitled to under the law, to fund the aid. This is sometimes 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 as 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.

To be a valid special needs trust, it must meet specific criteria by Congress. A trust must be irrevocable, meaning 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 plan 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.

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