What is a special needs trust?

A special needs trust is established for the recipient of a public benefit, such as ALTCS or SSI.  If established and used properly, special needs trust funds can be used to supplement the beneficiary’s care without causing him to be denied or disqualified from public benefits.

Who is the trust settlor?

The trust settlor is the individual whose money is used to fund the trust.  In self-settled trusts, the settlor is also the beneficiary, while in third-party trusts the settlor generally establishes the trust for the benefit of a disabled child.  Settlors ordinarily establish a special needs trust to become or remain eligible for a public benefit program, such as ALTCS or SSI.

How can special needs trusts be used for trust beneficiaries?

While special needs trusts are primarily used to help people qualify for public benefits, they can also dramatically improve quality of life for trust beneficiaries.  Without additional support, recipients of public benefits are sometimes only able to obtain a minimal level of care.  A special needs trust can supplement public benefits so that the beneficiary may receive the best care possible.  While special needs trusts funds should generally not be used on food or shelter, funds can be used on a variety of other expenses, ranging from entertainment to medical care.

What types of limitations are placed on special needs trust funds?

Trust beneficiaries do not have open access to special needs trust funds.  Rather, a trustee, who should only use trust funds on allowable expenses, controls special needs trust funds.  Trustees should never distribute cash from the special needs trust to beneficiaries.  Furthermore, trustees should not use special needs trust funds to provide beneficiaries with food or shelter.  Trustees should not give gifts from trust funds to other people. Trustees who violate these rules may cause the beneficiary to lose his or her public benefits.

What is the difference between a self-settled and a third-party special needs trust?

A self-settled special needs trust is one that is established with the trust beneficiary’s own money; the beneficiary and the settlor are the same person.  With third-party special needs trusts, on the other hand, the trust settlor and the trust beneficiary are different people.  Both self-settled and third-party special needs trusts are used to help the settlor obtain public benefits and to supplement the beneficiary’s care.

What is a first-party special needs trust?

A first-party special needs trust is another term for a self-settled special needs trust.  It is a trust that is established with the trust beneficiary’s own money to help the beneficiary himself qualify for public benefits, such as ALTCS or SSI.

Who can establish a self-settled special needs trust?

A self-settled special needs trust is established with the beneficiary’s money, but the beneficiary cannot establish the trust personally.  Rather, a court, guardian or conservator must establish the trust.  A parent or grandparent may also establish a self-settled trust on behalf of the beneficiary.

What is a Medicaid special needs trust?

A Medicaid special needs trust is a special needs trust that is established to help people qualify for ALTCS, Arizona’s Medicaid program.  To qualify for ALTCS, applicants can only have a limited amount of resources.  Because special needs trust funds can be used for the benefit of an ALTCS member, without counting towards the ALTCS resource limit, special needs trusts can improve the beneficiary’s quality of life and also keep resources from being counted for purposes of determining ALTCS eligibility.  An SSI special needs trust is substantially identical to a Medicaid special needs trust, except it is used to help SSI members obtain or retain benefits.

For whom are special needs trust most commonly established?

Special needs trusts are almost always established to help the trust settlor qualify for public benefits.  Individuals who received a court settlement or inheritance that would otherwise disqualify them from public benefits most commonly establish self-settled special needs trusts.  Public benefit applicants with a disabled child commonly establish third-party special needs trusts to help them qualify for benefits, while providing for their child.

What is a pooled special needs trust?

A pooled special needs trust is a special needs trust in which the resources of many beneficiaries are pooled together and managed by a non-profit organization.  Beneficiaries can join a pooled special needs trust by transferring their own funds to the trust; there is no requirement that a court, guardian or conservator establish the trust for them, as with other self-settled special needs trusts.  A pooled special needs trust can be a helpful tool for public benefit applicants who would qualify for public benefits, but for excessive resources.  When a pooled special needs trust terminates, the non-profit organization may be entitled to keep some of the funds, after which ALTCS or SSI is entitled to reimbursement as well.

Are special needs trusts only for public benefit applicants?

Special needs trusts are a useful tool to help people qualify for public benefits.  They are also useful for people who would like to leave an inheritance to a person with a disability.  Because public benefit programs are needs based, a disabled person who receives an inheritance could be disqualified from important benefits if he directly receives an inheritance.  Even an inheritance left with good intentions could render the beneficiary ineligible to receive government assistance.  The way around this is to establish a special needs trust for the disabled person that will improve his quality of life without disqualifying him from government assistance.

What is an example of how a special needs trust can help a family with a disabled child?

Mr. and Mrs. Jones have a developmentally disabled daughter, June, who receives Social Security Income (SSI) and has never left home.  Several years back, Mr. Jones was diagnosed with dementia and has since been placed in a nursing home that costs the Jones $6,000 per month.  Mrs. Jones was concerned that this drain on their savings would leave no money to care for June, who may live long after Mr. and Mrs. Jones pass away.  Upon applying for the ALTCS benefit to cover Mr. Jones’s nursing home costs, ALTCS informed Mr. and Mrs. Jones that they must spend down a good portion of their savings before qualifying.

What ALTCS did not explain to the Jones is that spending down their excess resources is but one of the Jones’s options.  With the help of a special needs attorney, the Jones family may be able to expedite Mr. Jones’s eligibility by establishing a special needs trust for June.  Doing so could help the Jones accomplish their twin goals of providing for their daughter and receiving financial assistance for Mr. Jones’s nursing home costs.