Special Needs Trust: Part Two

In San Diego, supplemental needs trusts, also know as special needs trusts, is a trust which benefits an individual who has a disability. This special needs trust can be its own trust or part of an estate plan which can include a will and testament or part of a more specialized estate plan. This special needs trust allows al person who has a mental or physical disability or acquired or chronic illness to have funds held in trust for her or his benefit and these assets may not be considered for purposes of qualification for certain government benefits if drafted properly. These benefits may include medicaid, medi cal, vocational rehabilitation, subsidized housing and also supplemental security income also known as SSI. The special needs trust can provide income for extra and supplemental care over those provided by the government.

The statutory authority for the special needs trust was provided for by the United States Congress and is applicable to persons under 65 years of age and disabled according to the standards by the Social Security department. Each supplemental needs trust must have its own employee identification number [EIN] which is issued by the Internal Revenue Service. This trust needs to be irrevocable with provisions for trust termination or dissolution under certain circumstances and also needs to include explicit instructions for any amendments as necessary.

Many different types of assets can be used to fund the special needs trust. These can include [but are not limited to] money from savings accounts, inheritances, insurance settlement proceeds, legal settlement proceeds and lump sum payments from Supplemental Security Income or Social Security disability. These must be done before the 65th birthday of the disabled person and many set this up early in a child or adult’s life when there are going to be government benefits for the disabled person. If a parent wishes to leave funds for their disabled child, it is important that this be done in a special needs trust context rather than a distribution from the estate since a distribution over the limits could disqualify their beneficiary for the benefits they are currently receiving or need to receive. This means that careful planning is needed.

While the assets and funds in a special needs trust are not “counted” for qualification for government benefits, there may be an obligation to repay the federal government agency or state government agency and this is very complicated. The repayment language, whether there is a repayment or not, needs to be included in the special needs trust. Examples of when repayment may not be required are sources of assets and income placed into the trust by parents or other third party sources, personal injury settlement that is court ordered into the special needs trust and some others. Examples of when repayment may be required are assets which belonged to the disabled individual which had been transferred into the trust. These types of trusts are often “invaded” by the federal and state government agencies seeking reimbursement and repayment and the proper language and format is critical. If the special needs trust is not completely within the rules and regulations, this can cause a loss of benefits to the disabled person as well as other financial obligations for repayment

Please feel free to contact us for your confidential consultation which is at no charge in our office in San Diego.