Special Needs Trusts

Special Needs Trusts are financial accounts that can be set up for a person with a disability (the 'beneficiary').

  • The funds in the trust can be used for things like clothes, recreations, education, medical care, special therapies, travel and hobbies.

  • These trusts need to be created carefully, with the right documents and language. You should engage an attorney, accountant, or organization with verifiable expertise in special needs trusts.

Generally, there are two types of these trusts that allow transfer of excess resources for the purpose of qualifying for SSI, Medicaid and other benefits. These are called ‘qualified’ or ‘payback’ special needs trusts.

OBRA '93 Disability Pay Back Trust - commonly called a (self-settled) Special Needs Trust or d4A Trust:

  • Contains the assets owned by a person under age 65 who is disabled, as determined by Social Security.

  • Must be irrevocable. This means the trust can't be dissolved or the assets taken back out once they're transferred in.

  • One downside is that upon death of the beneficiary, Medicaid (but not Social Security) gets repaid for the benefits it provided your family member while he or she lived. Any remainder may go back to family.

OBRA '93 Pooled Trust - commonly called a Special Needs Pooled Trust or Pooled d4C Trust:

  • Similar to an irrevocable Special Needs Trust set up for one individual, a pooled trust is created and managed by a nonprofit organization.

  • A separate account is maintained for each person, but for management purposes of the trust the funds of all beneficiaries are 'pooled' together for investment purposes.

There is another type of special needs trust that is more common than a qualified or payback special needs trust. It is called a 3rd party special needs trust. This is the trust that some parents use to leave an inheritance to their child. This trust does not have a payback to Medicaid or other government entity, and money left over after the beneficiary dies can go to siblings or charities.

 

Image of a caution exclamation markCaution! if you transfer extra resources and child support to a 3rd part trust, you risk having a retroactive overpayment owed to the SSI (this is a disqualified transfer).

To stay safely within SSI's resource limits, extra resources or child support must be transferred to a qualified or payback special needs trust.

 

Source: Fletcher Tilton PC, National Academy of Elder Law Attorneys.

 

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