Special needs trusts offer a solution for those who want to provide assistance to someone with special needs, while maximizing the benefits of government programs.

Living with special needs involves many challenges to ensure proper care. Predicting medical expenses and evaluating resources for long-term support can be tricky and overwhelming. Regardless of age, a family member with special needs is likely to require help for a long time, if not for a lifetime.

What is a Special Needs Trust?

A special needs trust is a fiduciary and legal arrangement that provides financial assistance to someone with special needs, without affecting eligibility for government programs. Public assistance benefits, like Supplemental Security Income (SSI) and Medicaid, have strict eligibility requirements.

For example, if a beneficiary with special needs receives more than $2000 in assets, through a direct transfer, court settlement, or inheritance, he or she will not qualify for SSI or Medicaid benefits.

By creating a special needs trust, the beneficiary will remain eligible for state and federal assistance.

What are the Different Types of Special Needs Trusts?

  1. First-Party Special Needs TrustsA first-party special needs trust is typically created when a person with special needs has assets—or expects to receive assets through an inheritance, divorce, or legal settlement—that would prevent eligibility for government benefits. The beneficiary’s own assets fund the irrevocable trust, and the trust language must require that the account balance will reimburse the state Medicaid agency upon the person’s death.
  2. Third-Party Special Needs TrustsA third-party special needs trust is created with the assets of family or friends to provide financial assistance to an individual with special needs and preserve the beneficiary’s access to SSI and Medicaid. There is no reimbursement requirement for a third-party special needs trust.

Third-party special needs trusts can also benefit additional beneficiaries. For example, the trustee has the power to authorize payments for family and friends to encourage travel, activities, and relationship building with the beneficiary.

To learn more about trusts, see What is a Trust?.

The benefits of a special needs trust include:

  1. Access to Government Assistance ProgramsPublic assistance programs, like SSI and Medicaid, provide cash benefits and healthcare coverage for individuals who qualify. In determining eligibility, the Social Security Administration does not consider trust assets as income. Regardless of the value of the trust, the beneficiary will qualify for assistance while still benefiting from additional resources.
  2. Additional Income and Resources Special needs trusts help cover additional expenses, such as traveling, education, rehabilitation, or technology, to ensure quality of life for beneficiaries.
  3. Flexibility of Trust Assets Special needs trusts can be funded with cash, stocks, real estate and life insurance.
  4. Ensure Long-Term Care Special needs trusts ensure that assets will be used as intended, and the beneficiary will maintain a desired quality of life in the future.

How Do I Set Up a Special Needs Trust?

Given the complexity and longevity involved with administering a special needs trust, one of the most important decisions you can make is selecting a trustee.

The rules surrounding eligibility for government programs are complex and ever-changing, and a mistake could compromise eligibility for supplemental care. For more information, see How to Choose a Trustee.

Special Needs Trust Resources 

Fortunately, you don’t have to take this journey alone. At Members Trust Company, we have developed best practices to support you and your family.

We specialize in administering Special Needs Trusts and strive to provide accessible support to those caring for loved ones with special needs. There’s a reason trust is our middle name.

Trust services provided by Members Trust Company, a federal thrift regulated by the Office of the Comptroller of the Currency. Trust and Investment products are not federally insured, are not obligations of or guaranteed by the credit union or any affiliated entity, involve investment risks, including the possible loss of principal. This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant.