What Is a Special Needs Trust?

A special needs trust is used to protect funds for individuals with disabilities to enhance their quality of life without causing them to lose access to government benefits. While programs like Medicaid and SSI can cover basic essentials, these basics aren’t always enough to create a comfortable life for a person with disabilities. Special needs trusts are meant to supplement government income.

How Do Special Needs Trusts Work?

Special needs trusts are usually established when a disabled beneficiary receives funds from sources like a lawsuit or an inheritance. These one-time payouts can cause them to lose their needs-based government benefits if they aren’t placed in a trust. With a special needs trust, these funds can be used to cover supplemental purchases and payments.

Typically, a special needs trust requires a trustee other than the beneficiary. The trustee will be able to provide funds to benefit the disabled individual from the trust. However, these funds can’t be used to purchase anything that is already covered by the individual’s government benefits.

What Can a Special Needs Trust Pay For?

Special needs trusts can only be used for certain expenses. So, what can a special needs trust pay for? You can pay for things like education, additional medical expenses, recreation and more. The idea is to supplement not supplant government benefits.

Here are some of the common expenses that can be paid for with special needs trust funds:

Education
Clothing
Insurance expenses
Medical and dental expenses not covered by insurance
Travel costs
Electronics
Appliances
Social events
Therapy and counseling
Rehabilitation services
Vehicle expenses
Income tax
Home repairs
Purchasing a home

While special needs trust funds can technically be used for food, shelter and other basic essentials, doing so could result in a full or partial loss of benefits. What expenses can be paid also depends on what type of benefits the disabled individual is receiving. This decision should only be made if it is the best choice for the beneficiary. This is why it’s best to talk with a special needs trust lawyer, who can help you navigate the complexities of these funds.

Your special needs lawyer can help you plan your trust and answer any questions about how to spend these funds. Also, you can find out if the payments you make would affect the benefits of the trust beneficiary, as your lawyer will be familiar with specific rules and laws in your area.

Who Is Eligible?

Any individual who is certified as disabled and receiving government benefits is eligible for a special needs trust. In the context of special needs trusts, a disability is generally defined as a physical or mental impairment that substantially limits one or more major life activities, such as walking, seeing, hearing, speaking, breathing, learning, or working.

This definition includes individuals who have been diagnosed with a wide range of conditions, including but not limited to intellectual disability, autism spectrum disorder, cerebral palsy, multiple sclerosis, Parkinson’s disease, and traumatic brain injury. It’s important to note that eligibility for special needs trusts is not limited to individuals who receive government benefits or have a low income; anyone with a disability can potentially benefit from a special needs trust.

First Party Special Needs Trusts

A first party special needs trust, also known as a self-settled or d4A trust, is a type of trust that is established with the disabled individual’s own assets. This type of trust is often used when a disabled individual receives a settlement or other type of award as a result of a lawsuit or inheritance.

The purpose of a first party special needs trust is to allow the disabled individual to retain their eligibility for government benefits, such as Medicaid or Supplemental Security Income (SSI), while also providing additional financial support for their needs. One key feature of a first party special needs trust is that upon the death of the beneficiary, any remaining funds in the trust must first be used to reimburse the state for any Medicaid benefits received by the beneficiary during their lifetime. There are strict rules and regulations surrounding first party special needs trusts, and it’s important to work with an experienced attorney to ensure that the trust is set up and administered properly.

Third Party Special Needs Trusts

A third party special needs trust is a type of trust that is created by someone other than the disabled individual, such as a parent or grandparent. The purpose of a third party special needs trust is to provide financial support for the beneficiary while also preserving their eligibility for government benefits, such as Medicaid or Supplemental Security Income (SSI).

Unlike a first party special needs trust, there is no requirement to reimburse the state for Medicaid benefits received by the beneficiary upon their death. Third party special needs trusts can be set up during the lifetime of the creator, or through a will or other estate planning document. This type of trust can be a valuable tool for ensuring that a disabled loved one is provided for financially after the creator’s death, while also protecting their eligibility for government benefits.

Setting Up a Special Needs Trust in NY

If you need help setting up a special needs trust in NY, choose Burner Law Group. The good news about setting up a special needs trust is that the options are more flexible than ever. While a trustee (such as a parent, grandparent, guardian or court) is typically involved while setting up a special needs trust, the Federal 21st Century Cures Act ensured disabled individuals can set up these trusts on their own behalf. The process for this legislation is ongoing, but now disabled individuals don’t have to rely on family members to ensure their assets are secure.

Whether you’re a trustee looking to help a disabled beneficiary set up their trust or a disabled individual looking for help setting up their own trust, we can help.