A Special Needs Trust, also known as a Supplemental Needs Trust, is a trust set up for someone with special needs to allow that person the benefit of assets placed in the trust while at the same time remaining qualified for government benefits such as Medicaid and Supplemental Security Income (SSI). A trust is a legal document that allows a third party, called a trustee, to hold assets for the benefit of someone else (the beneficiary).
There are two types of Special Needs Trusts. One is funded with assets from a third-party, such as a parent, grandparent, or other relative of the special needs child, who want to make sure that he or she is provided for while still maintaining government benefits to pay for costly medical needs.
The other type of Special Needs Trust, a first-party funded or (d)(4)(a) Special Needs Trust is funded with assets belonging to the special needs child. This usually occurs where the special needs person receives funds as a result of a lawsuit (such as a car accident) or inherits assets from a relative.
When deciding whether a Special Needs Trust is right for your special needs child there are a few things you should consider. One, there a limits on what assets in a Special Needs Trust can be used for. The assets in a Special Needs Trust should be used to supplement government benefits received by the special needs child, not to supplant them. Also, there are tax consequences for setting up a Special Needs Trust. Trusts are generally taxed by the IRS at a higher rate than are individuals. Income dispersed from the trust to the special needs child is reported as the child’s income and is generally taxable.
Finally, when setting up a Special Needs Trust, you should be sure that the person(s) or entity that you designate as the trustee is trustworthy and capable of managing assets. You should also be sure that the person(s) or entity actually know the needs of the person benefiting from the trust (the special needs child) and are willing and able to use the trust assets to meet those needs.
If you would like assistance in setting up a Special Needs Trust, or would like further information, you can give us a call or contact us here to schedule a free consultation. For more information on Special Needs Trusts, check out our Law Blog and FAQ pages on this website.