Ins and outs of special needs trust


A special needs trust* (SNT) is a trust that is established to benefit a disabled person or a person who has special needs, while still allowing that person to qualify for and receive government health-care benefits.

Some government programs aimed at assisting the disabled, such as Medicaid and Supplemental Social Security Income (SSI), are needs-based. Meaning, if the disabled individual has access to more than a specified level of resources (generally $2,000), he or she will not be eligible to receive such benefits. In 1993, Congress officially approved the use of SNTs to maximize the use of all available resources, both private and governmental, to provide more fully for the needs of the disabled.

Types of SNTs

Self-settled or first-party SNT
This is created for the sole benefit of a disabled person who is under age 65. The trust must be established by the disabled person’s parent, grandparent, or guardian, or by the court. It cannot be created by the disabled person. However, the disabled person can fund the trust. For example, with money that has been inherited or received in settlement of a lawsuit, or as a result of a divorce.

As previously stated, in order to qualify for Medicaid and SSI, the person who is enrolling must have a limited amount of income and resources. Generally, Medicaid and SSI will look back 60 months to see if assets have been transferred to someone else in order to qualify for benefits, and if so, a penalty will be imposed. Transferring assets to an SNT, however, does not trigger these look-back provisions.

One benefit of a self-settled trust is that assets in the trust will not be countable as resources for eligibility purposes.

One disadvantage is that upon the disabled individual’s death, any money or assets remaining in the trust must be used to reimburse the government for Medicaid benefits extended to the individual during his or her lifetime.

Pooled SNT
This is a trust managed by a nonprofit organization. Funds are pooled for investment purposes, but separate subaccounts are maintained for each disabled beneficiary. A pooled SNT works in the same way as a self-settled SNT. However, with a pooled SNT, the disabled individual can create the account for himself or herself.

Additionally, any funds remaining in the account upon the individual’s death can be used to pay back Medicaid, or they can remain in the pooled SNT to help others in the pool, depending on state law.

Third-party SNT
This is a trust created by a disabled person’s parent or other third party. This type of SNT has no payback requirement. The person establishing the trust must not have a duty to support the disabled child, so the child must be age 21 or older, depending on state law. There is no requirement that the disabled person be under the age of 65. In some states, transfers to a third-party SNT may trigger the Medicaid or SSI penalty period.

*There are fees associated with creating a trust.

 Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

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