Cary Special Needs Attorney Answers, “What is a Special Needs Trust?”

by Jackie Bedard on January 8, 2011

in Estate Planning,Special Needs Planning,Trusts

By: Jackie Bedard, Carolina Family Estate Planning, Cary, NC

As a Cary special needs attorney, I’m often asked, “What exactly is a Special Needs Trust?”

For starters, a special needs trust is legal entity created to hold assets of a person with a mental or physical disability. The trust names a trustee whose job it is to manage the assets and distribute them according to the provisions of the trust.  There are specific limitations on the way assets can be distributed so that they do not disqualify the beneficiary from eligibility for government programs such as Medicaid, Social Security Disability Insurance and other benefits.

Special Needs Trusts are used in different contexts, and as such, you’ll sometimes here different names or terms used, such as “luxury trust,” “supplemental needs trust,” “Medicaid trust,” “Medicaid qualifying trust,” “income trust,” or “Miller trust.” The different names are often short-hand references for a particular feature of the trust, but in general, there are two primary types of special needs trusts.  They are:

Self-Settled Special Needs Trusts

In a self-settled special needs trust, the assets in the trust belong to the beneficiary.  For example, if the person becomes disabled due to negligence of a doctor or car accident, it is possible that the beneficiary received a settlement as a result of litigation.  In this case, a self-settled special needs trust would be created for the beneficiary to receive and hold the settlement funds in order to preserve government benefits.

Third-Party Special Needs Trusts

A third-party special needs trust is created by a third party with assets that belong to the third party.  For example, the parents of a child born with Down Syndrome or autism might create a special needs trust for their child as a part of their overall estate plan.  In the case of a third party special needs trust, family members may make lifetime gifts to the child.

Distributions for Special Needs Trusts

In order to preserve government benefits it is important to direct the trustee not to pay for services that are provided by a government agency.  If done correctly, the assets in the special needs trust will not be counted as a resource, thereby preserving eligibility.  The trust must authorize distributions only for special or supplemental needs.  Some examples of this might include dental care, specialized therapy, and services of a care giver. Improper distributions of a special needs trust can cause a loss in government services, so it is critical that the trust be set up and then managed properly.

Who Should Create a Special Needs Trust?

Not all special needs trust attorneys have the training, expertise or knowledge to create a special needs trust.  You should consult with an attorney who is experienced in creating these trusts and who knows how to properly advise trustees.

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