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Special Needs Trusts

 

Special Needs Trusts are funding vehicles that allow individuals to stay qualified for Medicaid, Social Security Income/Medicare, and other medically needy programs. There are many advantages to establishing a Special Needs Trust for purposes of reducing countable assets in order to qualify for SSI, but more importantly for the Medicare and Medicaid benefits that come with that qualification. Assets in these trusts cannot be used for certain things without a penalty- food and shelter are excluded uses.  

There are basically two different types:

  1. Self-settled Trusts or Disability Trusts: You must be under 65 years old to establish this trust and the beneficiary must be disabled. These are best for our SSI issues. The trust is funded with the beneficiary’s own money/assets and it can be established by self, a parent, grandparent, legal guardian or the court. The beneficiary can now establish the trust themselves. The assets cannot be used for food or shelter without penalty or reduction of social security of benefits. Upon the beneficiary’s death, the trust must provide repayment of Medicaid assistance paid on behalf of the beneficiary from any remaining assets in the trust.  These trusts are irrevocable. 
  2. Third-Party Special Needs Trusts: These are created by a parent or grandparent with the third party’s assets (not with assets of the Beneficiary). Third-Party Trusts are created by another for the benefit of a disabled family member (not a spouse). They can be established during the grantor’s lifetime, at their death (testamentary trust), or through an intervivos gift. The Beneficiary cannot have the authority to control assets.  There is no requirement to repay Medicaid, but it is still a supplemental trust (no food or shelter without a penalty or reduction in social security benefits).