Special Needs Trusts

A special needs trust is created to ensure that beneficiaries who are disabled or mentally ill can enjoy the use of property which is intended to be held for their benefit. In addition to personal planning reasons for such a trust (the person may lack the mental capacity to handle their financial affairs) there may be fiscal advantages to the use of a trust. These trusts may also avoid beneficiaries losing access to essential government benefits.

• Family Trust – This is the most common type of special needs trust and is usually set up by the parents. The funds cannot be used for “basic needs” (food, housing, or clothing) as defined by SSI and Medicaid laws because this will reduce or eliminate government benefits. The trust funds can be used for a variety of expenses including, but not limited to, purchasing a home which can be rented to the disabled person, vacations, trips, sports equipment, medical costs in excess of Medicaid, and funeral and burial costs. All members of the family can provide money for this type of trust. The only person who cannot place money into this type of trust is the disabled person.
• Pooled Trust – Established through a non-profit association and usually used to address the needs of all members of the group, not just the specific needs of one disabled family member. However, pooled trusts are exempt from the Medicaid repayment rules and normally the trustee of a pooled trust understands government benefits extremely well. Once your money is placed into the pool it usually cannot be returned to you. Further, you do not have control over how the money is to be spent.
• Court Ordered Trust – The disabled person actually owns the money to be put in the trust. Usually, this money comes from inheritance or money received in a court settlement/judgment. Only certain people are eligible to set up this type of trust. These people include the disabled person’s parent or grandparent, the legal guardian, or a court. To qualify, the disabled person must be under 65 years of age and meet the medical standards of Social Security, in terms of disability. Further, any remaining trust money existing at the time of the disabled person’s death is paid to the State of Florida for the government benefits provided to the individual when the trust was established.

Another important benefit a special needs trust can provide is funds for legal fees and medical care in excess of what Medicaid pays. The trust can pay for an advocate to insist that your child or loved one be granted services by the government, as required by law. For people who are not particularly wealthy, a special needs trust is still a valuable tool and can be funded with a life insurance policy.