Who can Benefit from a Special Needs Trust

Special needs trusts (also known as supplemental needs trusts) are an important part of the financial planning process for a special needs child. These trusts are designed to provide benefits to those with physical, psychiatric, or intellectual disabilities, and still allow them to receive government benefits including Social Security (SSI) and Medicaid.

There are two types of special needs trusts. A first-party trust is funded with assets that belong to the beneficiary of the trust. The trust can be set up by the beneficiary, a relative, guardian or the courts.

First-party special needs trusts must have a Medicaid payback provision in it. When a beneficiary dies, any remaining money goes to repaying Medicaid and if anything is left after that, it goes to listed beneficiaries. 

These trusts are ideal for people who receive a windfall, such as a settlement for medical negligence or car accident or an inheritance. It may also be ideal for an individual who has existing assets, becomes disabled, but needs to qualify for Medicaid’s means-tested benefits. These trusts are irrevocable. To qualify for these trusts, the beneficiary must be younger than 65 and must have a disability.

The third-party special needs trusts are funded with assets owned by a person other than the beneficiary.

A third-party trust is irrevocable. A big advantage to the third-party special needs trust is that there is no Medicaid payback provision and a secondary beneficiary can be named to inherit the remaining funds when the original beneficiary dies.

There are two ways to establish a third-party special needs trusts: the stand-alone trust and the testamentary trust. The stand-alone trust is meant for someone who intends to financially support their loved-one throughout their life. A testamentary trust is intended as an inheritance to be established after the creator passes away.

Special needs trusts can be the answer to many situations and conditions for the disabled. Please reach out to Kevin Miller, an estate planning attorney in Oklahoma City with more than 35 years of experience, to discuss these trusts in more detail.