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Elder Law & Special Needs Planning

Special needs trust Attorney Clearwater

A special needs trust is set up for a person with special needs to supplement any benefits the person with special needs may receive from government programs. A properly drafted special needs trust will allow the beneficiary to receive government benefits while still receiving funds from the trust. There are two main types of special needs trusts, but first it is important to understand how a typical trust works.

A trust is really a relationship between three parties -- a donor, who supplies the funds for the trust; a trustee, who agrees to hold and administer the funds according to the donor's wishes; and a beneficiary or beneficiaries who receive the benefit of the funds. Often, but not always, the donor's wishes are spelled out in a document that gives the trustee instructions about how she should use the trust assets. Trusts have been used for estate planning for a long time, and are highly useful tools for ensuring that a donor's property is administered as he sees fit. One of the reasons trusts are so popular is that they usually survive the death of the donor, providing a low-cost way to manage the donor's assets for others when the donor is gone.

A special needs trust is a trust tailored to a person with special needs that is designed to manage assets for that person's benefit while not compromising access to important government benefits. There are two main types of special needs trusts: the first-party trust and the third-party trust. Both name the person with special needs as the beneficiary.

First Party Special Needs Trust

A "first-party" special needs trust holds assets that belong to the person with special needs, such as an inheritance or an accident settlement. There are two types of first party trusts.

Individual Special Needs Trust D4A
The reason there are several different types of trusts has to do with regulations regarding Supplemental Security Income (SSI). SSI is a government program that assists people with low incomes who have special needs. In order to qualify for SSI, an applicant or beneficiary can have only $2,000 in his own name. If the person has more than $2,000 in his own name, (typically because of excess savings, an inheritance or an accident settlement), the government allows him to qualify for SSI so long as he places his assets into a first-party special needs trust. The trust must be created by the beneficiary's parent or grandparent, or by a court, but it cannot be created by the beneficiary, even though his assets are going to fund the trust. The trust beneficiary must be under age 65 when the trust is established and funded. While the beneficiary is living, the funds in the trust are used for his benefit, and when he dies, any assets remaining in the trust are used to reimburse the government for the cost of his medical care. These trusts are especially useful for beneficiaries who are receiving SSI and come into large amounts of money, because the trust allows the beneficiary to retain his benefits while still being able to use his own funds when necessary.

Pooled Special Needs Trust D4C
A pooled trust is an alternative to the individual special needs trust. Essentially, a charity sets up these trusts that allow beneficiaries to pool their resources for investment purposes, while still maintaining separate accounts for each beneficiary's needs. A pooled trust may be established by a parent, grandparent, court, guardian or the individual and the beneficiary may be any age when it is set up and funded. When the beneficiary dies, the funds remaining in her account reimburse the government for her care, but a portion also goes towards the non-profit organization responsible for managing the trust. If there is anything remaining, the funds are distributed to the remainder beneficiaries. 

Third Party Special Needs Trust

A "third-party" special needs trust holds funds belonging to other people who want to help the person with special needs. The third-party special needs trust is most often used by parents and other family members to assist a person with special needs. These trusts can hold any kind of asset imaginable belonging to the family member or other individual, including a house, stocks and bonds, and other types of investments. The third-party trust functions like a first-party special needs trust in that the assets held in the trust do not affect an SSI beneficiary's access to benefits and the funds can be used to pay for the beneficiary's supplemental needs beyond those covered by government benefits. But a third-party special needs trust does not contain the "payback" provision found in first-party trusts. This means that when the beneficiary with special needs dies, any funds remaining in her trust can pass to other family members, or to charity, without having to be used to reimburse the government.

Anyone can establish a special needs trust and, if the trust is properly drafted to account for tax planning, in certain situations gifts into the trust could very well reduce the size of the donor's taxable estate. As if these are not enough reasons to create a trust, elderly people who are attempting to qualify for long-term care coverage through Medicaid can transfer their assets into a properly drafted third-party special needs trust for the sole benefit of a person with disabilities without incurring a transfer-of-assets penalty, allowing the elder to qualify for Medicaid and making sure that the person with disabilities is taken care of in the future.

What Can the Trust Pay For?

Some sample trust distributions for the Beneficiary that should not affect his or her means-tested benefits, could include:

  • reasonable compensation of the Trustee, and allied professionals advising the Trustee, e.g. investment manager, attorney, fiduciary accountant
  • reasonable compensation of care providers, including family members, where appropriate (Medicaid is often resistant to paid family or friends of Beneficiary due to frequent abuses)
  • medical services and equipment not covered by government programs
  • domestic and personal care services (housekeeper, grooming, meal preparation)
  • household costs other than food, mortgage or rent, real property taxes, heating fuel, gas, electricity, water, sewer and garbage removal
  • pre-paid funeral and burial arrangements (however, if the Beneficiary dies before arrangements have been pre-paid, no payments for same may be made from the Special Needs Trust until after Medicaid pay-back is fully satisfied)
  • computer or augmentative communications devices, and internet service
  • television or other electronic equipment
  • apparel, including maintenance and repair of same
  • one vehicle used for transporting the Beneficiary (not including a purely recreational vehicle)
  • membership in recreational clubs, cultural institutions
  • professional services: attorneys, accountants, claims processors, advocates, coaches
  • academic or recreational courses or classes
  • home decor, furniture, furnishings, appliances
  • dry cleaning and laundry services and supplies
  • fitness equipment and club membership
  • auto maintenance and supplies
  • home security alarm and monitoring service
  • yard service and maintenance
  • insurance for home, auto, liability
  • linens, towels, bedding
  • personal care items and supplies
  • music lessons, cost of instruments
  • non-food groceries and sundries
  • educational needs and supplies
  • over-the-counter medications
  • pet, service animal and supplies, veterinary services
  • sporting goods and equipment
  • stationery, stamps
  • telephone service and equipment
  • therapies not covered by benefits programs
  • tickets to cultural or sporting events
  • transportation costs (bus, subway, paid driver)
  • cable TV
  • vacation for Beneficiary and one attendant
  • catch-all: “such uses and purposes as the Trustee deems appropriate under all circumstances” for the sole benefit of the Beneficiary

The Parri Law Firm has great experience in drafting and administering individual, pooled and third party special needs trusts.   Call today if you think you need a special needs trust or need help administering a trust.  (727) 586-4224

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