Special Needs Trusts Created By the Individual with Disabilities

Special Needs Trusts can hold assets for the benefit of an individual with disabilities while still allowing her to maintain eligibility for governmental assistance programs like Supplemental Security Income and Medicaid. This is because the assets in a Special Needs Trust do not count toward the asset limit for such programs.

The Special Needs Trust Fairness Act of 2016 now allows individuals with disabilities to establish their own first party special needs trust with their own assets. Before this Act, disabled individuals capable of making their own trust had to rely on parents, grandparents, or other loved ones to make one for them. Read below for some important things to know about First Party Special Needs Trusts.

Basic Requirements

A First Party Special Needs Trust (“FP SNT”) must be for the sole benefit of the disabled individual, aka the beneficiary of the Trust. This means that the trustee of the FP SNT cannot be allow to make distributions for the benefit of anyone besides the beneficiary.

Importantly, the trustee of a FP SNT should make payments for the benefit of the beneficiary as opposed to directly to the beneficiary. Direct payments to the beneficiary are counted as income towards the beneficiary for governmental assistance purposes. Appropriate payments might include those made for educational expenses, therapy, transportation, professional fees, phone bills, recreation, and entertainment.

An individual with disabilities must transfer all of their desired assets to her FP SNT before she reaches age 65.

Payback Provisions

After the beneficiary dies, a FP SNT must provide that the State receives all amounts remaining in the Trust, up to an amount equal to the total amount of Medical Assistance paid on behalf of the beneficiary. There are just a few types of administrative expenses that may be paid before the State is paid back: (1) taxes due from the trust because of the death of the beneficiary; and (2) reasonable expenses for trust administration.

No Early Termination Provision

Under no circumstances should a beneficiary be authorized to terminate or revoke a FP SNT. The trustee may be authorized to terminate the FP SNT trust early if (1) the beneficiary is no longer disabled; (2) the beneficiary is ineligible for SSI and Medicaid; or (3) trust assets have been reduced to the point that continued administration is not financially justified.

Conclusion

This article just hits of the highlights of a First Party Special Needs Trust. If you or someone you love is interested in learning more, contact your legal professionals at Rochford Langins Jarstad.