Families with special needs children often are often concerned about how they can pass assets to their children without interrupting important public benefits, such as Medicaid. Supplemental needs trust, sometimes called special needs trust, can assist in protecting these very important benefits. There are three main kinds: 1) third party supplemental needed trust 2) self-settled supplemental needs trusts, and 3) pooled supplemental needs trusts.
What are third party special needs trusts?
Third party supplemental needs trusts are established to benefit a person using money and assets that do not belong to the special needs person. For example, a parent or a grandparent of a child with a disability can set up a third party trust using their own assets, and other family members can contribute funds to it as well. Funding can occur during the contributor’s lifetime or can be done at death. This keeps the beneficiary’s other public benefits from being jeopardized.
If established and funded correctly, all or most assets being left to a special needs or disabled loved one, can be placed in a supplemental needs trust for their benefit. As long as the special needs beneficiary does not have the ability to direct distributions, or revoke the trust, then he or she can use the benefits to help pay for things such as housing, clothing, with little to no impact on their benefits. Also, there is no pay back to the state for third party supplemental needs trusts, as for self -settled supplemental needs trusts as described below.
How do self-settled special needs trust work?
Self -settled or self- funded supplemental needs trusts are setup using only the assets, whether it’s money or property, that belong to the person with a disability – the beneficiary. Self-settled trusts are funded typically using assets accidentally directed to a disabled person, work earnings, and lawsuit proceeds.
Although this type of trust is funded using the beneficiary’s assets, it must be established by a parent, grandparent, guardian, or court. A trustee must be appointed to manage the trust who is not the beneficiary. The trust be drafted so trust assets are for the sole benefit of the beneficiary, and there must be a payback provisions to the state or states where the beneficiary received Medicaid assistance. Texas law also provides that assets transferred to a self-settled trust by a beneficiary who is over the age of 65 can result in a loss of certain types of Medicaid benefits.
What is a pooled supplemental needs trust?
Diving into the world of creating and managing a supplemental needs trust can sometimes be a deterrent to many individuals and families. It is difficult to find a family member or friend who can act as Trustee. Some families may not have enough in assets to appointment a bank, or corporate trustee. For families who may not have the means to cover the costs or have the knowledge to deal with the complex trust process, a pooled supplemental needs trust can be a great alternative.
A pooled trust is a non-profit organization responsible for the establishment and management of the pooled trust. All it takes to join a pooled supplemental needs trust is the signing on a Joinder Agreement, which provides the terms on how the trust is to be handled. This can be done by the beneficiary, a parent/grandparent, or the court. As income and assets begin to roll in, separate accounts are setup for each member. Essentially, multiple trusts are being pooled together, resulting in a higher return on investment and a lower cost of administration.
Pooled supplemental needs trusts can be third party or self-settled depending on where the money funding the trust comes from. Pooled trust administers are typically knowledgeable about Medicaid and other public benefit programs, and can help make distributions that will maintain eligibility for benefits.
Of course, you should always seek the professional advice of an experienced special needs attorney before moving forward with any type of special needs trusts. Choosing the right path is crucial.