In the first part of my blog, I talked about the third party special needs trust set up by a family member for the benefit of a family member receiving government benefits such as SSI and Medicaid. This part two blog is what happens when the individual receiving these government benefits has funds of their own or inherits funds from a family member.
As I mentioned before, when it comes to planning for a family member that suffers from a mental or physical disability, it is important to protect their government benefits during their lifetime. If a beneficiary is receiving SSI and/or Medicaid, that beneficiary cannot have more than two thousand ($2,000) dollars in an account without losing those government benefits.
Last week I talked about one of the commonly used Special Needs Trusts, a third party special needs trust. However, for purposes of this blog, I am going to talk about the Self Settled Special Needs Trust. This type of Trust is set up by the beneficiary (or someone acting on their behalf such as a guardian or conservator). To determine whether or not a Self Settled Special Needs Trust is the right type of Trust, you must first ask yourself “Does the beneficiary have the right to outright possession of the proceeds prior to the Trust being established?” For example, did the beneficiary inherit funds or did they receive funds recovered in litigation? In other words, the monies received are really the property of the beneficiary. If the answer is yes, then the Self Settled Special Needs Trust may be the Trust that is needed. If the beneficiary were to hold those funds in their name, the outright ownership with full control will affect the government benefits that they are receiving.
The Self Settled Special Needs Trust must be set up with court approval. It typically involves some help from a family member or a court appointed guardian/conservator. A petition must be filed with
the court requesting that these funds be placed in a Self Settled Special Needs Trust. The Trust allows a Trustee to distribute income and/or principal for the benefit of the beneficiary, so long as it is not replacing any benefits already being covered by government assistance (such as housing, utilities and food).
A significant difference between the Self Settled Special Needs Trust and the Third Party Special Needs Trust is that the Self Settled Special Needs Trust requires that upon the death of the beneficiary any remaining funds must be paid back to the state Medicaid program as a form of reimbursement. This is why many of these Self Settled Special Needs Trusts are commonly referred to as “Medicaid Payback Trusts.”
Depending on the amount of funds owned by the individual, this trust may be too much. It may be important to also look into other options such as an account under the new ABLE Act.
For more information, check out the full article on special needs planning on my website.