Special Needs Trust

The primary purpose of a Special Needs Trust is to preserve government benefits for disabled beneficiaries. A trust is a legal document containing instructions directing the management and distribution of the resources placed in the trust. A Special Needs Trust is a trust designed for beneficiaries who are disabled, either physically or mentally and are intended to provide “supplemental and extra care” beyond what is provided by the government.

Here is a brief list of the duties and responsibilities that Guidance Carolina fulfills as trustee:
– Avoid any activity that conflicts with the purpose of the trust—which is to enhance the quality of life of the beneficiary.
– Spend money to enhance the beneficiary’s life, while making the trust funds last as long as possible.
– Respond to the beneficiary’s personal needs for goods and services that aren’t covered by SSI or Medicaid.
– Keep up with SSI and Medicaid income and resource rules so that the trustee’s spending doesn’t affect the beneficiary’s eligibility for SSI and Medicaid.
– Invest and manage trust property following the terms of the trust and state law in the beneficiary’s best interests.
– Keep the beneficiary and other interested persons up to date on trust activity.
– Work together with the beneficiary’s guardian or conservator if the court has appointed one.
– Keep accurate records, prepare reports that the SSI and Medicaid programs require, and file necessary federal and state tax returns.
– Go to court, if necessary and financially reasonable, to uphold the trust and require the SSI and Medicaid programs comply with applicable law.
– Terminate the trust if circumstances warrant doing so.
– Manage or distribute trust property after the beneficiary dies or the trust is terminated.

Special Needs Trusts are designed to supplement, not replace, the kind of basic support provided by government programs like Medicaid and Supplemental Security Income (SSI). Special Needs Trusts pay for comforts and luxuries–special needs–that could not be paid for by public assistance funds.

When determining how the Special Needs Trust can be used, Guidance Carolina staff consider the following questions:

1. Is the expenditure permitted by the trust terms? Is it prohibited by Medicaid or Social Security regulations?
2. Does the expenditure clearly benefit the trust’s beneficiary?
3. Is there enough money in the trust to make the proposed payment without seriously affecting the ability to provide other benefits in coming years?
4. Are there other sources of funds? If public benefits are available to provide the same items, the money ordinarily should not come from the trust.

Guidance Carolina administers the following types of trusts:

Third Party Special Needs Trust – A trust established by a third party (usually a parent or relative) for the benefit of a loved one with a disability.
– There are two types of Third Party Special Needs Trusts:
– Third Party Pooled Special Needs Trust
– (also known as a Community Trust)
– Third Party Individual Special Needs Trust

First Party Special Needs Trust – A trust established with the beneficiary’s own funds – a personal injury settlement, inheritance, alimony, sale of property, or the beneficiary’s own savings.
– There are two types of First Party Special Needs Trusts:
– First Party (d)(4)(C) Pooled Special Needs Trusts
– (also known as an Umbrella Trust)
– First Party (d)(4)(A) Special Needs Trust

Consider a Third Party Special Needs Trust.
A Third Party Special Needs Trust helps you provide financial security for a loved one with a disability—without jeopardizing important government benefits. In contrast, leaving money directly to loved ones can make it impossible for them to get benefits, including Medicaid.
A Third Party Special Needs Trust is funded by someone other than the beneficiary – gifts/inheritances from a parent, grandparent, other family member or friend. Gifts into the trust can be made throughout the beneficiary’s life. Friends and family can even name this type of Special Needs Trust in their will, thereby contributing additional funds at their death.

Consider a First Party Special Needs Trust.
A First Party Special Needs Trust is funded by the beneficiary’s money – a personal injury settlement, inheritance, alimony, etc. If a disabled person receives a lump sum such as this, it disqualifies the person for public benefits (e.g., SSI and Medicaid) now and in the future, since it is an increase in assets. Setting up a First Party Special Needs Trust enables the beneficiary to retain the additional finances without jeopardizing public benefits.

Payback refers to paying back the state from money leftover in the trust upon the death of the trust beneficiary as a reimbursement for having received public benefits. 
– First Party Trusts, in which funding usually comes from a personal injury settlement or inheritance, require payback to the state. With a Pooled Trust, a portion will be retained by the non-profit organization that manages the trust. 
– Third Party Special Needs Trusts do not have a payback provision.

National Academy of Elder Law Attorneys

Special Needs Alliance

Special Needs Answers