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What is a Special Needs Trust?

  • May 13, 2022

A special needs trust is a type of trust used to provide funds for an adult or child with special needs, while still maintaining their eligibility for Medicaid or Supplementary Security Income (SSI).

“Special needs” as a medical term, often refers to individuals suffering from a wide range of developmental disabilities, including Down syndrome, severe autism, blindness, or chronic diseases such as multiple sclerosis or cystic fibrosis.

All the individuals with those conditions may benefit from a special needs trust. However, the law allows for a much wider range of possible beneficiaries. A disabled person, impaired in the exercise of one or more life functions, for whatever reason, maybe the beneficiary of a special needs trust.

Setting up a special needs trust can work without complications, but the stakes are often too important and left to chance. Consulting with special needs attorneys about your family situation can ease the process of creating trust significantly.

How Does Special Needs Trust Work?

In a special needs trust, a settlor or donor places the property in a trust, for a beneficiary — the special needs adult or child. The trust document sets out the property used on behalf of the special needs beneficiary.

The individual who manages the trust is the trustee. The trustee may spend money to make purchases for the care of the beneficiary, pay bills, or provide for benefits not covered by government programs like Medicaid or SSI. The trustee cannot give money to the beneficiary directly, or pay for expenses usually covered by government programs.

If the special needs trust is set up correctly, the beneficiary receives benefits from the trust, while still maintaining eligibility for government programs. This can mean the difference between a comfortable life and a life of poverty. As the benefits of Medicaid and SSI are often not sufficient to cover expenses.

Upon the death of the beneficiary, any remaining funds are either used to reimburse the state Medicaid program for expenses incurred or revert back to the family of the special needs beneficiary, depending on the exact structure of the trust.

Benefits of a special needs trust

special needs trustsA special needs trust is usually set up for one of three reasons.

First, if the person with special needs qualifies for government payments under Medicaid or SSI. Those payments may not be sufficient to ensure a reasonable quality of life.

A special needs trust can provide an option. It allows the beneficiary to have a better standard of living without jeopardizing eligibility for government programs.

Family members can establish such a trust using their own funds.

Second, a special needs trust can have its initiation by or on behalf of the special needs individual, especially if there has been a personal injury or lawsuit settlement. Even if a private settlement has generated a significant amount of money, a special needs trust can help with the management.

Also, given the expense of private medical care, even the largest settlement may not last long enough to see a beneficiary through the rest of their life. A beneficiary may eventually need to qualify for Medicaid or SSI income.

Last, a person with special needs may not be capable of managing their own affairs. This is particularly true in the case of individuals with mental disabilities. In this case, the trustee for the special needs beneficiary handles the financial matters of the special needs person.

This sort of special needs trust has a spendthrift trust. Spendthrift trusts prevent the beneficiary from squandering money left or given to them. No one/nothing can seize the assets of a spendthrift trust even creditors or in lawsuits.

The Falcon Law Group is a firm of experienced special needs lawyers NJ and NY. We have prepared special needs trusts for many clients in New Jersey and New York.

If you have a loved one who is a special need adult or special needs child, and you need help in providing for their care and well-being — the Falcon Law Group can help guide you through the process of setting up a special needs trust. Call us today for a consultation.

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