Jackson W. worried about his daughter, Olivia. As someone with a severe intellectual disability, she needed help with all daily activities and would never be self-sufficient. Her care was expensive and life-long. As he pondered ways to provide for Olivia’s care, he wondered if a special needs trust would be helpful.
Children with disabilities like Olivia often need long-term, expensive care. Parents of special needs children want to provide enough money for that care, just like Jackson.
However, sometimes giving them money actually prevents the child from receiving much-needed public benefits. And leaving the money to other children or another “trusted” adult who promises to care for the child is probably not legally binding. There is no guarantee that someone will properly care for the child when you are gone.
A Trust with a Specific Purpose
People typically establish special needs trusts for two general reasons:
- To hold and maintain funds for a disabled person; and
- To ensure those funds don’t damage the disabled person’s eligibility for public benefits.
A disabled individual may need this type of trust for long-term care planning or to deal with a large influx of money from inheritance or a civil judgment.
The Two Main Types of Special Needs Trusts:
- First-Party Special Needs Trust. Also known as a Self Settled Supplemental Needs Trust or (d)(4)(A) trust. This trust is used when the disabled individual owns assets, but expects to need Medicaid or other public benefits down the road. The disabled person uses rust assets to pay for expenses not covered by SSI or other sources. A first-party trust is different from other trusts in that:
- Historically, a parent, grandparent, guardian, or court had to set up the trust. As of 2016, the individual may do so as well.
- The trust must be irrevocable.
- The trust must be funded by the beneficiary’s assets.
- The beneficiary must be age 65 or younger at the time the trust is created.
- The trust must reimburse the state Medicaid agency upon the beneficiary’s death.
- Third-Party Special Needs Trust. What sets this trust apart is that third-parties establish and fund the trust. Many times, a donor will set up this trust as part of an estate plan. For example, Jackson may establish the trust for Olivia when he does his estate planning, or he may have the trust created by his Will upon his death. The person making the trust may have to consider the following:
- There is no age requirement or limitation.
- The trust fund is not limited in size or value.
- Trust funds can be used for almost anything.
- Assets remaining in the trust at the beneficiary’s death may pass to other beneficiaries.
- The trust assets never belong to the beneficiary, so Medicaid does not have to be reimbursed.
Benefits of Using a Special Needs Trust
When Jackson considered the merits of different special needs trusts, he chose to establish and fund a third-party trust to cover Olivia’s needs. Olivia has no assets of her own to contribute to a trust. The beneficiary cannot fund a third-party special needs trust anyway. Thankfully, Jackson can contribute as much money as he wants to the fund. The trust he sets up will not interfere with Olivia’s future need to apply for public benefits under current law. As a result, Jackson feels a great sense of relief the day he fully funds the trust.
Some Trusts Require a Little More TLC.
The attorneys at Miller Estate and Elder Law assist clients with special needs planning, as well as long-term care and Medicaid applications. For more information get a copy of our Legal Planning Guide for Children and Young Adults with Special Needs.
For a free consultation with an experienced Alabama attorney, contact us at 256-251-2137 or use our convenient Contact Form. We have offices in Anniston and Birmingham and serve clients in Gadsden, Hoover, Talladega, Vestavia Hills, and surrounding areas.