A special needs trust is a common estate planning device to avoid the loss of public benefits. The most important public benefits available to disabled individuals are supplemental security income (SSI) and Medicaid. SSI and Medicaid limit the assets available to the disabled individual if the individual is to receive benefits.
SSI and Medicaid provide the disabled individual with only the bare necessities needed to maintain their health and support. The special needs trust assets are used to supplement and not replace such government assistance assuring continuation of such benefits. Some luxuries special needs trusts can provide include transportation, travel, vacations, entertainment, reading materials, computer equipment, toiletries, and companionship. Special needs trusts distributions may also provide a disabled individual with medical care that Medicaid will not provide, such as over the counter medication, experimental medical treatments, nurses, private rehabilitation services, and sophisticated diagnostic services. Although these benefits are often deemed “luxuries” that term is really a misnomer because what maybe a luxury to a child who does not have special needs is a necessity to a disabled child.
Special needs trusts provide a vehicle for those who care about the disabled individual to provide for his or her long term needs, without sacrificing his or her medical care and basic support. Special needs trusts allow parents to achieve some piece of mind that their disabled child will be cared for after they have passed away, and that the entire burden is not falling on the public. A properly drafted special needs trust can have a life changing effect on a disabled individual and can ensure that the disabled individual will be able to continue receiving government benefits while at the same time receiving benefit from the trust.
***Please note that this research guide covers all type of special needs trusts that are applicable in Florida. However, this guide is mainly geared toward special needs children.
There are three different types of special needs trusts. Specifically, the three types of special needs trusts are: 1) first party or self-funded trust; 2) third party trust; or 3) pooled trust. Each type of trust has its own requirements, however, first party and pooled trust both require Medicaid payback upon the death of the beneficiary.
First party trusts (self-funded trusts) can only be created by parents, grandparents, legal guardians or the court, and can only be for beneficiaries who are 65 years or younger. A first party trust is created to receive and hold assets that belong to the individual with a disability, such as lawsuit awards, settlements, gifts etc., and must be managed by a trustee other than the beneficiary.
A third party special needs trust (also known as a supplemental needs trust) can be created by anyone except the individual with special needs. It is funded with assets not owned or controlled by the beneficiary, usually by parents or other family members often by will or by purchasing life insurance and making the special needs trust the beneficiary of the policy. Anyone can fund this trust, except the individual with special needs. This trust does not require Medicaid payback provision.
Pooled special trusts must be administered by a not-for profit organization. The trusts pool the funds of many beneficiaries to invest and manage. Although funds are pooled, each beneficiary has his/her own account. Pooled trusts can be used for beneficiaries over the age of 65. A big advantage of pooled trust is that they are willing to handle much smaller accounts than a bank or trust company, so individuals of modest means can have access to sophisticated trust services.
Children who have special needs, need more then financial support in their lives. Parents of children who have special needs, need to recognize and understand that their child has more challenges in life. The following links will be helpful in recognizing and understanding the challenges your child is facing and the difficulties that may arise in your child's future.
Special Needs Advocacy Groups Links
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The government resources that are available to care for and support a special needs individual may come from both the federal government and the state government. The resources include:
These resources, now considered entitlements, are extremely important to the special needs individual. Their availability is subject to limitations on other available assets and income.
Accordingly, it is vital that estate planning not compromise eligibility for these programs. Any resources provided as a result of estate planning that exceed allowed limits may reduce or eliminate federal and state benefits that would otherwise be available.