Special Needs Trusts

When you’re searching for ways to provide for a loved one with a disability without causing issues with their SSI and Medicaid benefits, you should consider a special-needs trust.

What Are Special-Needs Trusts?

A trust is a type of account that’s created to be managed by a trustee for the benefit of someone else, who is referred to as a beneficiary. Trusts are typically designed to last until the funds from the trust are fully used by the beneficiary or until the beneficiary dies. A special-needs trust is aimed at providing assistance for an individual who is suffering from a physical or mental disability and is currently unable to properly manage their own finances. These trusts ensure that the beneficiary does not lose the various government benefits that they are currently receiving, which extend from Social Security income to Medicaid benefits.

Funds that are provided to a special-needs individual through a standard will may cause this individual to be disqualified from using government benefits. While the money or other assets from a will would be given directly to the special-needs individual, the assets within a special-needs trust are managed by a trustee instead of the person with special needs. Although this is a small difference, it determines whether or not the person can still receive their government benefits. Contact our New Jersey probate lawyer to determine if you should create one of these trusts.

Types of Special-Needs Trusts

There are two different types of special-needs trusts that you should be aware of, which include third-party trusts and first-party trusts. Third-party special-needs trusts are commonly used by individuals who are planning in advance for their loved one with special needs to be taken care of. A third-party trust can be opened up by a sibling, parent, or anyone else aside from the beneficiary. The assets and funds that are placed within the trust must come from someone who is not the beneficiary in order for it to be classified as a third-party trust. It’s also possible for multiple individuals to place funds or assets inside of this trust for the benefit of the special-needs individual.

A first-party special-needs trust is one where a disabled person receives property or money directly or already had some assets before they became disabled yet need to eventually qualify for public benefits. In many cases, these trusts can only be created by a legally and mentally competent individual who is disabled and is going to be the beneficiary of the trust. A direct parent or guardian may also create the trust. All of the assets and funds placed inside a first-party special-needs trust must come directly from the disabled individual. Once this individual dies, any money left inside of the trust will be used as reimbursement for the Medicaid that they received during their lifetime.

How Special-Needs Funds Are Meant to Be Used

When a special-needs trust is created, the funds that are placed inside can be used in a variety of ways as long as they are controlled by a trustee as opposed to the beneficiary. The trustee can purchase products and services on behalf of the special-needs individual, and these products and services can include:

• Vehicles
• Expenses for dental and medical care
• Home furnishings
• Physical therapy
• Vacations

Our Middlesex County estate planning attorney can answer any of the questions you have about how these funds can be used.

If you want to know more about special-needs trusts and how you can create one, call our New Jersey estate planning lawyer at (732) 351-2121.