Did you know there is a way to provide funds for someone who is disabled or ill without reducing their eligibility for Medicaid or other government disability benefits? This can be done by setting up a special needs trust. All assets placed into a special needs trust are protected from disqualifying Medicaid eligibility and other government disability aid.

Who needs a Special Needs Trust?

Any disabled or ill individual who is expected to receive funds large enough to disqualify them from government disability aid would benefit from a special needs trust. According to Florida Medicaid, those who most commonly need a special needs trust are:

• A disabled child who receives an inheritance
• A disabled child who receives funds from a personal injury settlement or suit
• A disabled adult living in a nursing facility who receives an inheritance
• A disabled adult living in a nursing facility who receives funds from a personal injury settlement or suit

How does a special needs trust work?

The creator of the trust will first assign a trustee who will manage the assets of the trust. The trustee and the beneficiary cannot be the same person. The creator of the trust will create and sign the trust, then transfer the assets into the trust. The trustee is then in charge of administering the trust according to the trust’s terms.

Types of Special Needs Trusts

There are two different types of special needs trusts: a “first-party” special needs trust and a “third-party” special needs trust.

A first-party special needs trust is funded with assets that originally belonged to the beneficiary. First-party special needs trusts must have a beneficiary who is under the age of 65 at the time of the trust’s creation. Because the beneficiary’s assets fund the trust, the remaining assets must be used to reimburse Medicaid at the time of the beneficiary’s death.

A third-party special needs trust is funded by a third-party, someone who is not the beneficiary. A third-party special needs trust cannot contain any funds that were previously the beneficiary’s. Unlike first-party trusts, there is no age limit for a third-party trust. Also, unlike first-party trusts, the remaining funds in a third-party trust are not required to be used to reimburse Medicaid.

Are there any restrictions to a Special Needs Trust?

Special needs trusts cannot be used to fund things that are already being funded by Medicaid or other government aid. Funds in a special needs trust must only be used to purchase items that are not covered by the government benefit programs.

If you think you might need a special needs trust, or if you are seeking assistance with a special needs trust, please contact us today. Our attorneys will speak with you about your facts, and help you decide if a special needs trust will work in your situation. 

This post was written by Allison Koukoulis and edited by Patrick D. Quarles