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A special needs trust is a popular strategy for those who want to help someone in need without risking that the person will lose their eligibility for programs that require their income or assets to remain below a certain limit.

Should I Use a Special Needs Trust?  A special needs trust is a legal arrangement and fiduciary relationship that lets a physically or mentally disabled or chronically ill person get income without reducing their eligibility for the public assistance disability benefits provided by Social Security, Supplemental Security Income (SSI), or Medicaid.

Investopedia’s recent article entitled “What Is a Special Needs Trust?” says that a grantor creates a trust, and a trustee oversees the disbursement of assets from the trust. The beneficiary is a person for whose benefit the trust is created. The trust will supplement the beneficiary’s government benefits but won’t replace them.

This trust helps cover a disabled individual’s financial needs that aren’t covered by public assistance payments. The assets held in the trust don’t count toward public assistance eligibility.

The proceeds from this type of trust are typically used for medical expenses, caretaker expenses and transportation costs. The person who creates the trust (the grantor) names a trustee who will have control over the trust. The trustee will also oversee its management and the disbursement of funds.

The trust is funded with assets belonging to a person other than the beneficiary, and funds belonging to the beneficiary can’t be used to fund the trust. Funding may come from gifts, an inheritance and proceeds of life insurance policies.

Assets originally belonging to the disabled individual placed into the trust may be subject to Medicaid’s repayment rules, but assets provided by third parties such as parents aren’t.

Special needs trusts are irrevocable and can’t be tapped by creditors via a lawsuit.

Such a trust can have benefits for both parties. The beneficiary gets financial support without putting their eligibility for income-restricted programs or services in jeopardy.

The person or party that contributes to the trust is assured that the proceeds will go to expenses they stipulate.

The grantor or their legal representative must define the terms of the trust documents very carefully to ensure their validity and to confirm that the directives and purpose of the document are explicitly clear.

If you want to explore creating a supplemental benefits trust, speak with an experienced estate planning attorney.

Reference: Investopedia (July 12, 2022) “What Is a Special Needs Trust?”