A Special Needs Trust (SNT), sometimes called a Supplemental Needs Trust, provides for the needs of a disabled person without disqualifying him/her from benefits received from government programs like Social Security and Medicaid. A Special Needs Trust makes it possible to appoint a trustee to manage assets and qualify or retain for public assistance benefits.
It is a common belief that a person who is disabled and receives government benefits can not have a trust. However, this does not apply to a Special Needs Trust because this trust does not belong to the person with the disability. The trust is established and administered by someone else. This administrator is known as the Trustee. Therefore, the person with the disability does not have the trust but is nominated as a beneficiary of the trust and is usually the only one who receives the benefits. Furthermore, the Trustee is given the absolute discretion to determine when and how much money the disabled person will receive.
The primary purpose of this Special Needs Trust is to preserve government benefits for disabled beneficiaries. Programs like Social Security and Medicaid are not based on financial need but are instead based on the applicant’s age and earnings record. Therefore, those who are beneficiaries to a Special Needs Trust may still qualify for these programs.
For Family-Type Special Needs Trusts, the parents provide the money for the trust, often by ill or life insurance that is payable to the trust. Some parents place their property in a “living” or “inter vivos” trust and provide in the trust that the disabled child is the beneficiary. With this type of trust, the trust becomes effective immediately and the disabled child can start receiving money before the parents are deceased. All family members, like aunts, uncles, and grandparents, have the ability to leave assets to the trust or write a check to the trust.
A Family-Type Special Needs Trust cannot be used for housing, food, and clothing. These things are considered “basic needs” under the Social Security Income and Medicaid laws. Therefore, if a disabled person is receiving free housing, food, or clothing, like from a family member or a trust, then governmental benefits will likely be reduced or eliminated.
A Court-Ordered Trust, also called a Type “A” Special Needs Trust, is use only for special circumstances, such as where the person with a disability has inherited money or received a court settlement. Since the disabled person now actually owns the money the funds cannot be put into a Special Needs Trust like the parents usually set up.
The various types of Special Needs Trusts listed above can only be set up by: