What Is A Special Needs Trust?

March 31, 2021

Special Needs Trust

A special needs trust is an irrevocable trust created to benefit those with special needs. This type of trust can provide for a person with disabilities, including medical care, housing, food, clothing, and transportation. A parent or grandparent can establish the trust to provide for the care of their child or grandchild who has a disability. It is also possible to establish a special needs trust on behalf of an adult disabled person.

If you are interested in considering a special needs trust as part of your estate plan, consider visiting with the experienced estate planning attorneys at Johnson Law Group at  (720) 463-4333 or text us today at (720) 730-4558.

Understanding Special Needs Trusts

Special needs trusts are used to protect assets and provide financial support for people with disabilities without depleting their resources. Typically, special needs trusts are irrevocable, so the trustee has no power to terminate or modify the trust. However, if you have a disabled child and want to preserve your assets for his or her benefit after your death, you have the option of also considering other types of trusts for that purpose.

The main reason people establish trust for their special needs children is to ensure that they will qualify for Medicaid benefits and not lose all their assets when they die. It also helps avoid the need for the beneficiary's conservator (such as a guardian) to petition the court to be allowed to take over his or her finances.

Special Needs Trusts and Governmental Benefits

A special needs trust is designed to ensure that public benefits such as Supplemental Security Income (SSI) and Medicaid are protected and not used to satisfy the beneficiary's financial needs. The funds in a special needs trust will not affect the beneficiary's number of public benefits and can be used to pay for items or services that are not covered by public benefits programs. The beneficiary's eligibility for government benefits will not be affected if they receive income from a properly drafted trust, including interest and principal payments. Additionally, a special needs trust will not disqualify the beneficiary from receiving Medicaid-funded long-term care services.

Possible Beneficiaries of a Special Needs Trust

A disabled person, such as a child or an adult, who is eligible for benefits under the Supplemental Security Income (SSI) program or Medicaid can be the beneficiary of a special needs trust. You can also create a special needs trust for yourself if you are likely to become disabled in the future.

However, if you are already receiving SSI benefits, your state may require that you apply for Medicaid before establishing a trust. Some states also prohibit using special needs trusts to protect income from private sources, such as insurance settlements and awards from lawsuits. If you have received an inheritance or other gift and want to make sure that Medicaid costs do not deplete, you may need to place it in another type of trust, such as an ABLE account. If you are interested in learning whether or not your family would benefit from a special needs trust, consider visiting with an experienced estate planning attorney at Johnson Law Group today.

Types of Assets in a Special Needs Trust

Several different types of assets can be included in a special needs trust. Some of those types of assets include the following:

  • Cahs
  • Property
  • Income from any assets (interest earned on CDs and savings accounts)
  • Money earned through stocks
  • Proceeds from property sales
  • Social security income
  • Annuities
  • Life insurance policies

Visiting with an experienced attorney can help you determine what types of assets would work best for your special needs trust.

How To Establish a Special Needs Trust

Creating a special needs trust can be legally complicated and challenging. An experienced estate planning attorney can help you prepare a special needs trust document and set up the trust in your state. In most states, you will need to appoint a trustee who is not related to you or your beneficiary and cannot be your conservator or guardian. Also, it is possible to name a successor trustee if the original trustee becomes unable to serve. The trustee will manage the assets in the trust until your beneficiary dies or becomes able to manage his or her own finances. After that time, the trustee must distribute the remaining assets according to your instructions in the trust document.

Modifying a Special Needs Trust

Once you have created a special needs trust, you do have the option to make certain changes under the law. However, most states do not allow changes that would significantly reduce the number of benefits that Medicaid could pay for care for your beneficiary after he or she dies. Changes you can potentially make include the distribution of funds to provide more immediate benefits for medical care and other services related to your beneficiary's disability. Additionally, it is possible to name a different successor trustee or add more assets to the trust if the beneficiary is no longer eligible for Medicaid.

When Should Someone Create a Special Needs Trust

It is important to create a special needs trust as soon as possible. Failing to do so could result in a beneficiary losing all of his or her assets under Medicaid rules. Medicaid requires that a person only have only $2,000 in cash and other assets to qualify for coverage. Also, the special needs trust must be irrevocable so that the trustee cannot change it.

Contact an Experienced Estate Planning Attorney at Johnson Law Group

Johnson Law Group is dedicated to helping families through the estate planning process. Our office is located in Colorado, and our estate planning attorneys have extensive experience with special needs trusts as well as all other types of estate planning documents. We can help ensure that your assets are distributed as you wish after your death. If you are interested in a special needs trust and are considering establishing one as part of your estate plan, contact our legal team to learn more about all of your options to protect your financial rights at (720) 463 4333.

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Written by Family Law Attorney Myles S. Johnson
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