A Special Needs Trust has a very unique purpose. They are created solely for the need to hold assets of an individual without jeopardizing that person's eligibility for Supplemental Security Income or Medicaid. These two government programs have strict asset limits of $2000. If an individual has more than $2000, then they would not qualify for the support. Even worse, I have seen Social Security pursue clients who were previously on Supplemental Security Income, received an inheritance, lost their Supplemental Security Income and the Social Security Administration pursue the client for back pay of the Supplemental Security Income they received while they were ineligible.
The Special Needs Trust prevents the individual from losing their benefits, while still having the ability to utilize the assets held in the trust for their benefit.
Most of my clients for Special Needs Trust comes as a referral from a Personal Injury Attorney. The client is about to receive a Personal Injury Settlement but is also receiving Supplemental Security Income (SSI) or Medicaid. The Special Needs Trust would allow the individual to receive the benefits of the settlement without jeopardizing the Supplemental Security Income or Medicaid.
There are self settled trusts, meaning that the funds are coming from the individual directly, or a third party Special Needs Trust, usually as a gift from a parent or grand parent. A Personal Injury Settlement would be a self settled trust, that up until December 2016 almost always had to be a Pooled Trust, while an inheritance from a parent or grand parent is usually a third party, if established properly.
Prior to December 2016, all self settled trust had to be created by a court order, or a guardian. Unfortunately, many of my clients receiving Personal Injury Settlements were being settled prior to a suit being filed, so the only option was a Pooled Trust. This was a quirk in the law that was acknowledged by Congress for many years, that was only recently changed. The change now allows an individual to create their own self settled trust, as long as they are under the age of 65.
There are two slightly different sets of rules for the Special Needs Trust uses, depending if the individual is receiving either Supplemental Security Income or Medicaid.
If Supplemental Security Income is the benefit, than the Special Needs Trust can pay for most anything, EXCEPT food and shelter, as long as it is for the SOLE BENEFIT of the individual. That includes a home, car, travel, entertainment, clothing, and even a pre paid burial contract. Shelter is rent, or mortgage, electricity, phone
If Medicaid is the benefit, then the Special Needs Trust can also pay for food and shelter, as well as the previous list for Supplemental Security Income. The difference is because Supplemental Security Income is used to help pay for food and shelter, while Medicaid does not pay for food and shelter.
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