What is a Special Needs Trust?

A special needs trust is a trust which does not interfere with a disabled trust beneficiary’s eligibility for government benefits.

Special Needs Trust Administration

A properly drafted special needs trust should state the trust maker’s intent to help the trust beneficiary, without affecting that beneficiary’s eligibility for government benefits. The special needs trust agreement will give the trustee authority to distribute income to the beneficiary, provided that the trustee maintains the beneficiary’s eligibility for government assistance. In other words, the trust assets should be used to supplement the beneficiary’s government support, but not replace it.

The trustee is responsible for maintaining the special needs trust. If the trustee spends money from the trust improperly, the trustee could cause the beneficiary to lose government benefits. The trustee should never spend money in the trust on a basic need that is already being paid by the beneficiary’s Medicaid. Doing so puts the beneficiary at risk to losing his or her Medicaid benefits. Trustees administering a special needs trust may be held personally liable for handling the trust in a way that adversely affects the beneficiary’s eligibility for government assistance.

Third Party Special Needs Trusts

This type of special needs trust is established by the beneficiary’s family members. The trust is created by a third party for the benefit of the mentally or physically disabled beneficiary. Basically, someone other than the beneficiary creates the trust agreement and contributes his or her own assets into the trust. The third-party who creates this trust will usually be the recipient’s parent, or grandparent. The parent or grandparent could create a revocable living trust during their lifetime and include a special needs article in the trust.

The special needs article states that if the beneficiary becomes eligible for government benefits through Medicaid or SSI, the trustee shall withhold any distribution of money that will adversely affect the beneficiary’s eligibility for aid.

Self-Settled Special Needs Trusts

A self-settled special needs trust is a trust created by the person who is receiving government aid. The person receiving aid is both the grantor and beneficiary of the trust. This trust includes similar provisions to a third-party special needs trust. The trust will also include a provision to restrict any distributions from the trust that would eliminate or diminish the amount of government aid the recipient is eligible for.

In Florida, only disabled persons under the age of 65 may create self-settled special need trusts. Self-settled special needs trusts must also be irrevocable. In other words, the person creating the trust cannot usually undo the trust once it is created unless certain events occur. This is distinct from third-party trusts, which may be terminated or amended by the third-party trust maker. Finally, self-settled special needs trust must include a payback provision where the remaining money will be used to reimburse the state for Medicaid benefits upon the trust maker’s death.

There are two other types of self-settled special needs trusts: pooled trusts and qualified income trusts (QIT).

  • A pooled trust holds a pool of multiple individual’s self-settled trust assets. The assets of all the sub trusts are pooled for investment purposes and is managed by a not-for profit trustee.
  • A QIT is used when long-term Medicaid recipient’s income exceeds the monthly cap. Medicaid will continue to pay for someone’s long-term care, if a QIT is established.

Special needs trusts can be confusing. It is important to hire an estate planning attorney who is familiar with dealing with Medicaid and other government benefit programs when deciding whether you may benefit from a special needs trust.

The Florida Probate & Family Law Firm has a team of experienced Estate Planning attorneys located in Coral Gables, Florida. If you are currently in need of assistance with planning your estate, contact us to set up an appointment to evaluate your options.