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SPECIAL NEEDS TRUSTS

SPECIAL NEEDS FAQS

WHAT IS A SPECIAL NEEDS TRUST?

 

A Special Needs Trust, or Supplemental Needs Trust as it is also called, is a trust established for a disabled person with assets either belonging to the disabled person or another individual for the purpose of qualifying or retaining public benefits for the disabled person. If the assets are contributed by the disabled person, it is called a First Party Special Needs Trust. If the assets are contributed by another person, such as a parent, it is called a Third Party Special Needs Trust.

 

 

 

WHAT IS THE DIFFERENCE BETWEEN A FIRST PARTY SPECIAL NEEDS TRUST AND A THIRD PARTY SPECIAL NEEDS TRUST IN ADDITION TO WHOSE ASSETS ARE CONTRIBUTED TO THE TRUST?

 

The major difference is the “Payback Provision.” A First Party Special Needs Trust must contain a provision which states that any funds advanced by Medicaid in any state must be paid back after the beneficiary dies or if the trust is terminated before any funds in the trust can be used for other final expenses or distribution to remainder beneficiaries.

 

 

 

WHEN SHOULD A PERSON CONSIDER USING A SPECIAL NEEDS TRUST?

 

If a parent is considering estate planning and has a child who is disabled, he or she should consider using a Third Party Special Needs Trust as part of his or her planning. Also, if a person is receiving a distribution from an estate or from a divorce or personal injury settlement, he or she should consider a First Party Special Needs Trust.

 

 

IS THERE A REASON NOT TO DO A FIRST PARTY SPECIAL NEEDS TRUST?

 

Under the Affordable Care and Patient Protection Act (ACA), individuals with pre-existing medical conditions will be able to purchase private health insurance which covers all pre-existing conditions. This part of the ACA goes into effect on January 1, 2014. If a disabled person receives a large personal injury or divorce settlement, or inheritance, and can afford to purchase health insurance covering pre-existing conditions at a reasonable price, a First Party Special Needs Trust with a Medicaid Payback Provision may not be necessary.

 

 

CAN A SPECIAL NEEDS TRUST HELP A FAMILY WITH ONE PARENT IN A NURSING HOME?

 

Yes. When a person with a spouse is admitted to a nursing home, all assets are transferred to the spouse at home. If that spouse predeceases his or her spouse, those assets need to be protected from disqualifying the spouse in the nursing home from Medicaid. A Qualifying Special Needs Trust can be drafted in a Will for the spouse at home to protect the family’s assets from passing to the spouse in a nursing home or being considered available to that spouse.

 

Special Needs Trusts, or Supplemental Needs Trusts as they are sometimes called, are used to protect a person’s assets while maintaining public benefits. Typically, Medicaid is the public benefit that a person wants to maintain, as it provides health insurance for those who can not afford private health insurance or do not qualify for Medicare. Persons on Medicaid either receive health insurance as recipients of Supplemental Security Income (SSI) from the Social Security Administration, or through the state Medicaid office. Most people who are on public benefits are caught off guard when they find out that they are about to receive an unexpected amount of money, either by inheritance, divorce, or from a personal injury case. They do not realize that receipt of these funds will cause them to lose Medicaid benefits and, in some cases, SSI. Often, family or friends leave their assets by Will or trust to individuals on public benefits without realizing that the assets left to these individuals may disqualify them for Medicaid.

 

There are several types of special needs trusts. The most notable one is known as a Self-settled Special Needs Trust also known as a (d)4(A) Trust. This type of special needs trust is established with the beneficiary’s own funds and contains a Medicaid payback provision. The second type of special needs trust is a Qualified Income Cap Trust also known as a (d)4(B) Trust. This trust can only contain a beneficiary’s income, and is used to qualify for certain Medicaid programs when a person’s income exceeds the monthly limit. This type of trust also has a Medicaid payback provision. The third type of special needs trust is a Pooled Trust also known as a (d)4© Trust. This is a trust which contains the assets of the beneficiary, as well as, the assets of other beneficiaries. The funds are invested together but accounted for separately. If the assets remaining in the account of the beneficiary when he or she dies are retained by the pooled trust to be used for other beneficiaries, the funds are not subject to Medicaid Recovery. If the funds remaining in the account are enough to satisfy the Medicaid lien, then the beneficiary’s family can receive the excess less the agreed upon amount retained by the pooled trust. A (d)(4)A Trust can only be funded by someone under age 65. If a person is on SSI, and 65 years of age or older, he or she can not fund a (d)(4)(C) Trust without causing a transfer penalty, which results in losing SSI for up to three years.

 

There are two other special needs trusts that are commonly drafted that do not contain a Medicaid payback provision. The first is called a third Party Special Needs Trust. This type of trust is set up with funds of a person other than the beneficiary, such as a parent establishing a special needs trust for a disabled child. The funds in this type of trust were never the funds of the child, and therefore are not subject to Medicaid Recovery through a payback provision. During the child’s lifetime, the funds can be used to supplement the needs of the special needs child without causing a loss of public benefits. The other type of special needs trust is called a Qualifying Special Needs Trust. This type of trust is used to leave funds to a disabled spouse and must be created under a Will. The trust has to be funded with at least thirty percent of the elective estate in order to satisfy the elective share of the surviving spouse, unless there is a valid pre or post nuptial agreement in place.

 

Another important aspect of special needs trusts is trust administration. If funds are spent in an inappropriate way, a beneficiary under a special needs trust may lose his or her SSI and in some cases health insurance. Also, if funds are accumulated during a special needs trust beneficiary’s life, instead of spent to enhance his or her quality of life, the remainder may be subject to Medicaid Recovery. Therefore, it is very important to have a knowledgeable trustee or attorney trust advisor, to make sure that the special needs trust is administered in the best interests of the beneficiary.

 

The Elder Law Center of Mondschein and Mondschein, P.A. drafts special needs trusts in a variety of situations, as there are different types of special needs trusts which are used to address different problems. We advise clients if a special needs trust is appropriate, as well as which type to use. We also discuss alternatives to special needs trusts, as there may be other solutions to the problem. It is critical that if a special needs trust is appropriate, the correct one is drafted by an experienced attorney who works with special needs trusts. Otherwise, assets and/or public benefits may be lost.

 

If you have any questions concerning Special Needs Trusts, call our office for a free telephone consultation: (305) 274-0955.

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