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Jun 21, 2013

The Importance of Establishing a Special Needs Trust

In the absence of a Special Needs Trust if the disabled individual inherits money or property, governmental benefits can be reduced or eliminated altogether as the individual has more than the permissible amount to qualify for the benefits.

What can a Special Needs Trust do

The family can put money, property, and other assets into the Trust instead of leaving it to the incapacitated individual themselves. The incapacitated individual is designated as a beneficiary of the Trust and a Trustee is appointed to spend the money in the Trust on the behalf of your loved one. The funds in the Trust can be used to cover costs above and beyond the governmental benefits your loved one is receiving such as vacation, travel expenses, recreational activities, medical and dental expenses that would have to be paid out of pocket, etc.

A First Party Supplemental Needs Trust

A First Party Supplemental Needs Trust is an Irrevocable Trust which can be set up for a disabled person under the age of 65 using the assets of the disabled individual. This is most commonly used when the disabled individual may receive a inheritance or settlement which would bring their countable assets above the $2,000 limit.

If the funds are not placed in a First Party Special Needs Trust then governmental benefits such as Medicaid will be stopped and the disabled individual will be required to pay their own medical bills from the assets which they received until they are spent down to the $14, 400.00countable asset limit.

The funds in this Trust must be spent for the benefit of the disabled individual and the language of the Trust must include provisions which allow the state Medicaid agency to recover the remaining funds in the Trust up to the amount that it spent on the disabled individual.

Third Party Special Needs Trust

A Third Party Special Needs Trust is created by family members or friends of the disabled individual. The disabled individual can be of any age and will be a beneficiary of the Trust. A Third Party Special Needs Trust is an ideal estate planning tool for families who want to leave behind an inheritance for their loved one without affecting their right to receive Medicaid and other benefits.

A Third Party Special Needs Trust can outline how the disabled beneficiary is to be cared for after the parents or other family members taking care of the disabled have passed away and also how the assets in the Trust are to be distributed and spent. The Third Party Special Needs Trust can also be used during the lifetime of the beneficiary by having the assets in the Trust pay for expenses not paid by Medicaid or other governmental benefits. Unlike a First Party Special Needs Trust a Third Party Special Needs Trust does not have a Medicaid pay back requirement.

A Third Party Special Needs Trust can be Testamentary which means it is part of the Will or it can be a Revocable Trust with an Irrevocability provision or it can be created as an Irrevocable Trust.

A Pooled Trust

A Pooled Special Needs Trust is an attractive option for a disabled individual who may not have someone they consider to be a suitable Trustee. This Trust can be created by a family member, friend, and also the disabled individual themselves using their own assets. The Pooled Special Needs Trust is managed by a non-profit organization. At the time the disabled individual passes away the remaining funds in the Trust either go back to the non-profit organization or to the state Medicaid agency.

There are advantages and disadvantages to each of these options and an Elder Law attorney can help you choose the most appropriate course of action for your situation.

Juliet Gavriel, Esq

Queens Estate Planning and Elder Law Attorney located in Forest Hills, New York

Call us at 718-275-7722 for your Free consultation.