Essential Characteristics of a Special Needs Trust

Special needs trusts (SNTs) are trusts designed to allow beneficiaries to receive supplemental benefits without affecting eligibility for Medicaid, Supplemental Security Income (SSI), and other needs-based programs. In order to qualify as SNTs–meaning the disbursements from the trust will not be counted as income and the assets in the trust will not count as part of the beneficiary’s net worth–the trust must meet certain requirements. Below, we discuss the basic elements of a special needs trust. For advice and assistance regarding special needs trusts, reach out to a knowledgeable West Palm Beach special needs trust attorney.

First- vs. Third-Party Special Needs Trusts

Special needs trusts can be either “first-party” or “third-party.” A first-party trust is established by an individual for their own benefit, meaning the beneficiary is both the grantor (the person who puts assets into the trust) and the beneficiary (the person who receives distributions from the trust). If established correctly, assets transferred to the trust will no longer belong to the grantor, even though they will be used to provide for the needs of that person.

A third-party SNT is a trust established for the benefit of another person. The grantor sets up the trust to benefit another person, typically a child, grandchild, or legal ward.

Special Needs Trust Basic Requirements

Special needs trusts must satisfy certain characteristics in order to be valid under state and federal law and to ensure that the distributions do not adversely affect the beneficiary’s qualification for needs-based programs. Essential characteristics of an SNT include:

• Irrevocable. Trusts can be either revocable–meaning the grantor can change the terms of the trust or revoke the trust at any time–or irrevocable–meaning the trust cannot be revoked or changed. To be a valid special needs trust, the trust must be irrevocable. Once the trust is established, it cannot be changed by the grantor, and once assets are transferred to the trust, they cannot be taken back.

• Valid and lawful. The trust must be established in accordance with federal and state laws. The document must be properly drafted, notarized, funded, etc.

• Trust assets not “available.” The trust must be designed to negate a determination that the trust assets are “available resources” for the purposes of SSI, Medicaid, and other needs-based programs.

• Disability. To qualify for the special needs trust exception for SSI and other programs, the beneficiary must be disabled within the meaning of the rules governing Social Security disability.

A comprehensive trust document will include a few additional items to ensure the funds are securely held and the distributions can be made without affecting the beneficiary’s eligibility for Medicaid and other governmental programs. These items include:

• Intent. A special needs trust is meant to supplement, not supplant or diminish, governmental benefits. To avoid disqualification, the trust document should clearly state that it is not intended to be a basic support trust and is instead intended to supplement the basic needs provided by governmental programs.

• Payback. The trust document should address the trust’s obligation to reimburse governmental programs utilized by the beneficiary. For example, SNTs are subject to Medicaid’s payback provisions, meaning that Medicaid can collect property remaining in the trust after the death of the trust beneficiary to seek reimbursement for benefits paid.

• Establishment. To qualify for the Medicaid special needs trust exception, the trust must be established by the beneficiary (first-party), a parent, a grandparent, a legal guardian, or a court.

Protect Your Loved Ones and Plan For Your Future With Help from a Special Needs Trust and Medicaid Planning Attorney

A special needs trust attorney at Shalloway & Shalloway can help you protect your family, creating an estate and special needs plan suited to your individual needs and circumstances. We will evaluate your situation to determine the best type of will, trust, or other legal tool that may benefit your family the most. Contact the diligent and thorough West Palm Beach estate planning attorneys at Shalloway & Shalloway at 561-686-6200.