Special needs trusts

What is a special needs trust?

Special needs trusts are an essential part of future planning for your loved one with a disability. Public benefits, such as Medicaid, Social Security Disability Insurance, Supplemental Nutrition Assistance Programs and more are crucial to the health and well-being of many people with developmental disabilities. Unfortunately, these benefit programs require a person to have limited financial assets to maintain their eligibility, generally no more than $2000.

A special needs trust is a financial account that allows a family to set aside monies for their loved one that do not impact his or her public benefits. 

Who is involved in a special needs trust?

  • The beneficiary: The person who the trust is set up to help.

  • Manager: The person who works with the beneficiary, family and friends. 

  • Grantor: The person or people who create the trust. It can be family members or friends. 

  • Trustee: The person in control of  the beneficiary's money. .

Types of special needs trusts

First-party or self-settled trust
Individual ((d)(4)(A) or Pooled (d)(4)(C)

A first-party or self-settled trust is funded by the beneficiary, usually through direct inheritance of an insurance policy, personal injury award or through the death of a loved one. First-party or self-settled trusts are also known as a Medicaid Payback trust, which means any remaining funds at the time of the beneficiary's death are subject to paying back the state for Medicaid benefits throughout the beneficiary's lifetime.

Responsibilities of the trustee:​

  • Manage and invest funds; 

  • Write checks and make disbursements. Disbursements must be for the sole benefit of the beneficiary. It is important to consult with an estate attorney to determine how funds may be used if the beneficiary lives at home with friends or other loved ones, as some disbursements may be viewed as a benefit for all who reside in the home, such as an addition, or the purchase of a vehicle. 

  • The trustee must maintain accurate financial records, with receipts. A storage unit may be used to house these documents and receipts and be paid for by the trust. 

  • The trustee must distribute the annual K-1 tax form to the individual who makes requests for disbursements from the trust

What can the trust be used for? 

  • Medications; 

  • Hearing aids; 

  • Exams not covered by primary insurance and/or Medicaid; 

  • Assistive technology, such as iPads; 

  • Home modifications and furnishings, such as a ramp or bedroom furniture (remember, the modification must be for the sole benefit of the beneficiary); 

  • Clothing; 

  • Education and training; 

  • Care services;

  • Vacations and travel; and

  • Pre-burial and funeral expenses 

Third-party or family-funded trusts

A third-party or family-funded trust is created by a family member, friend or other loved one and funded with their own money, life insurance policy, gift or IRA. Money does not come directly from the beneficiary (the person with a disability). Third-party special needs trust do not require payback to Medicaid. 

Responsibilities of the trustee:​

  • Manage and invest funds; 

  • Write checks and make disbursements. Disbursements must be for the sole benefit of the beneficiary. It is important to consult with an estate attorney to determine how funds may be used if the beneficiary lives at home with friends or other loved ones, as some disbursements may be viewed as a benefit for all who reside in the home, such as an addition, or the purchase of a vehicle. 

  • The trustee must maintain accurate financial records, with receipts. A storage unit may be used to house these documents and receipts and be paid for by the trust. 

  • The trustee must distribute the annual K-1 tax form to the individual who makes requests for disbursements from the trust

What can the trust be used for? 

  • Medications; 

  • Hearing aids; 

  • Exams not covered by primary insurance and/or Medicaid; 

  • Assistive technology, such as iPads; 

  • Home modifications and furnishings, such as a ramp or bedroom furniture (remember, the modification must be for the sole benefit of the beneficiary); 

  • Clothing; 

  • Education and training; 

  • Care services;

  • Vacations and travel; and

  • Pre-burial and funeral expenses

Pooled trusts

A pooled trust can be set up for both first-party and third-party trusts. They are administered by a nonprofit organization for multiple beneficiaries. Each beneficiary has their own account, but funds are pooled together to be conservatively invested. This provides a safe opportunity for growth of the trust in a safe manner. 

Military Survivor Benefit Plan First-Party Special Needs Trust

The federal government allows military members and retirees to designate their survivor benefits to their children with disabilities. A self-funded (or first-party) trust is needed to ensure the money doesn't put other government benefits at risk. This type of trust will not impact your loved one's Medicaid and/or Social Security benefits. 

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© 2023 by The Arc of Northern Shenandoah Valley. 

Tel: 540-692-9650

Email: shenvalleyarc@gmail.com

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