A few years ago, the federal government added a very small change to verbiage in a law about special needs trusts that created a game changer for many people. While it’s not an incredibly new rule, it’s a very specific one that may matter greatly for you.
Trust laws are complex, and so are many trusts. These legal tools are meant to help protect your assets in a variety of situations, so choosing to set up a trust with help from an attorney may be a good idea. That way, you can rely on an experienced professional to guide you through the process and ensure the trust functions as you intended.
If you are an adult under the age of 65 who has special needs, you may be able to benefit from a special needs trust. Find out more about these types of trusts and how that little change to federal laws a few years ago made a big difference.
What Is a Special Needs Trust?
A special needs trust is a specific kind of trust that is set up to help provide for a person’s needs without impacting that person’s access to benefits like Medicaid or Social Security disability payments.
These trusts work by sheltering assets and funds, allowing the person with special needs to have access to them without having to count them in their resources for the purposes of benefits eligibility. In some cases, for example, someone who is seeking Medicaid coverage to help cover care associated with a disability might have to spend down their assets to a few thousand dollars. Assets in a special needs trust are exempt from Medicaid eligibility calculations, however, and don’t have to be spent down or used immediately to cover the costs of care. They are also exempt from Social Security resource calculations.
These types of trusts allow people with special needs to have assets put aside to cover more than basic needs like food and shelter. The assets in a special needs trust can be used to cover a variety of expenses, including out-of-pocket health care expenses, vehicle maintenance, some entertainment and travel, lifestyle goods and services, and costs associated with education.
Assets in a special needs trust typically can’t be distributed directly to the beneficiary with special needs. The trustee may have to distribute the assets directly to the businesses or organizations providing the relevant goods and services.
Types of Special Needs Trusts
There are several types of special needs trusts:
- First-party special needs trusts. These trusts are funded with assets that belong to the individual who has special needs. They may have inherited the assets, received them as compensation in a personal injury settlement related to their disability, or earned them while working before a disability reduced their ability to do so.
- Third-party special needs trusts. These trusts are funded with assets from a third party. Parents and other loved ones may set up these types of trusts to ensure their child or someone else has the resources they need.
- Pooled special needs trusts. These types of trusts can be self-funded or funded by a third party. The assets go into a pool with assets from others, and a professional organization manages the assets, including making investments, appropriately disbursing assets, and handling taxes.
Adding the Individual to Special Needs Trusts — Why It Matters
The federal rule that came out a few years ago has to do with first-party special needs trusts.
Prior to the rule change, the law said that these trusts could be set up by parents or grandparents as well as courts or legal guardians. The language of the law didn’t leave room for a person with special needs to set up their own first-party special needs trust. If an adult under the age of 65 needed the benefits of such a trust but didn’t have living grandparents, parents, or a legal guardian, they had to go to the court to get a trust set up.
The change in the newer law added the individual to that equation. That meant that the person with special needs could set up his or her own first-party special needs trust without having to go through tedious court processes or rely on someone else. Even more, the trusts set up by individuals under this change have all the benefits and protections that a trust set up by a parent or grandparent would.
The Benefits of Working With an Estate Planning Lawyer
Properly structured trusts can provide many benefits, including protecting your assets from creditors, taxes, and government benefits programs. Improperly structured trusts don’t do as much for you and can even create disadvantages.
If you’re considering a special needs trust, reach out to the Law Office of Polly Tatum to find out how we can help. Our team is experienced in Medicaid planning and the creation of all types of trusts. We’ll bring our knowledge of both to the table to help you plan for your future by protecting your assets and your rights to benefits today.