Special Needs Trust Attorney

An attorney knowledgeable in special needs trusts can help you determine what options are available to protect eligibility for public benefits using a special needs trust.

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What is special needs trust?  

Generally, a special needs trust is a trust for the sole benefit of a  beneficiary with disabilities with the goal of protecting public benefits like SSI and Medicaid. 

There are different types of special needs trusts available in Alabama depending on the age of the individual and whether the trust assets belong to the individual or someone else. In all cases, however, a third party should be involved to manage the trust (i.e., act as trustee). The beneficiary must not have control over the funds in the trust, and the trust must be carefully managed to provide for the supplemental needs of the person with disabilities.  This is generally done with the help of an attorney or other professional familiar with the laws governing trusts and the rules surrounding public benefits.

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What can special needs trust pay for? 

It depends on many factors such as the language in the trust, the needs of the beneficiary and  financial considerations surrounding trust disbursements. 

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Generally, however, a special needs trust can pay for items or services not being provided by public benefits like SSI and Medicaid.   Careful consideration should be given to the potential impact of distributions on the benefits received by the beneficiary.  

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Examples of things that can usually be purchased without impacting benefits are phone, cable, internet, vehicle, car insurance, car maintenance, gas for motor vehicle, certain pre-paid funeral or burial expenses, tuition, books, tutoring, household furniture and furnishings, televisions, computers, electronics, durable medical equipment (not otherwise provided by public benefits), care management, therapy, medications, alternative treatments, some taxes, attorney’s fees, and some other administrative fees.

 

A special needs trust should be managed with the help of a professional that is knowledgeable in the areas of trust law and public benefits law.  

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Why have a special needs trust? 

Talk to an attorney about the advantages and disadvantages of a special needs trust if  public benefits like SSI and Medicaid may be at risk due to the receipt of money or assets that could jeopardize eligibilty.    

 

What is an ABLE account? 

In late 2014, Congress passed the Achieving a Better Life Experience (ABLE) Act, which authorized states to create tax-free savings accounts available to individual’s whose disability occurred prior to age 26. The assets held in ABLE accounts will not count as a “resource” for eligibility for public benefits like Supplemental Security Income (SSI). 

• Only one ABLE Act account can be established per individual but there is no limitation on the number of individuals who can contribute to that one account. Total contributions for the benefit of a given ABLE Act beneficiary cannot exceed the maximum federal gift tax exclusion for a particular year ($16,000 in 2023).

• If the ABLE Act account exceeds $100,000, the participant’s eligibility for SSI will be suspended until the ABLE account is less than $100,000. 

• Upon the death of an ABLE account holder,  Medicaid must receive reimbursement from the remaining funds for Medicaid services provided to the individual after the establishment of the account. 

• Alabama’s ABLE account can be found here (https://www.alabamaable.gov/).

• Talk to an attorney to find out if an ABLE account is appropriate. 

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How Special Needs Trusts Work?

Generally, the special needs trust has a trustee who monitors and manages the trust assets for the benefit of the trust beneficiary in accordance with the terms of the trust document. The trustee must be careful to avoid paying or distributing funds from the trust which could jeopardize the beneficiary’s ability to receive public assistance funds.

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What happens when special needs trust beneficiary dies? 

For self-settled special needs trusts (i.e., trusts funded with assets of the disabled individual), certain limited expenses may be paid, but everything else must be paid to Medicaid to the extent it has made payments for the benefit of the trust beneficiary.  Self-settled special needs trusts are those that are created without advanced planning.  This usually happens when a person unexpectedly receives an inheritance or personal injury settlement.  For third-party special needs trusts (i.e. trusts funded with assets of anyone by the disabled individual), any amount remaining in the trust upon the beneficiary’s death may be paid to other remainder beneficiaries, such as other family members, and no payment to Medicaid is required.  Third-party special needs trusts (also called “supplemental needs trusts”) are typically prepared as a part of an estate plan and in advance of money received by a beneficiary.   

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Who manages special needs trust? 

A  trustee is the person charged with managing a special needs trust. The trustee can be an individual, a private professional fiduciary, or a bank.

 

There are many factors that should be taken into account when selecting a trustee. Someone experienced in creating special needs trusts can help you decide who would be best suited given your circumstances.

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Can special needs trust be revocable?

A special needs trust funded with the money of the disabled beneficiary must be irrevocable to maintain eligibility for public benefits like SSI and Medicaid. These are sometimes referred to as “self-settled” or “first party” special needs trusts.

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A third-party special needs trust is established by someone other than the person with disabilities (usually, but not always, a parent) with assets that never belonged to the disabled beneficiary. “Third-party” special needs trusts may initially be revocable by the person establishing the trust (known as the “settlor”), but later become irrevocable upon the happening of some event like the death of the settlor. However, once the person with disabilities is deemed to be the primary beneficiary of the trust, it must be irrevocable.

 

Can special needs trust pay for clothing? 

Yes, a special needs trust can pay for clothing for a beneficiary.

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Can special needs trust pay for housing? 

A special needs trust may be able to pay for housing (aka “shelter”) costs if its terms allow. The more important question is how that payment may affect any public benefits. Generally, the payment for housing on behalf of an SSI beneficiary is considered “in-kind support and maintenance” or ISM and would reduce the SSI received by 1/3.  However, a careful analysis must be performed by the trustee before making such payments on behalf of the beneficiary to avoid eliminating SSI in certain circumstances.  Housing or shelter costs include room, rent, mortgage payments, real property taxes, heating fuel, gas, electricity, water, sewerage, and garbage collection services. The purchase of a home by a special needs trust must be discussed with an attorney. 

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Can special needs trust be used for funeral expenses? 

Yes, but arrangements must be made prior to the death of the beneficiary if it is a self-settled special needs trust. A third-party special needs trust may pay for funeral expenses regardless of when it is created. Nothing in federal law prohibits or restricts the use of special needs trust funds for the purchase of burial and funeral arrangements during the beneficiary’s lifetime— except to the extent that the beneficiary has access to the funds used to pay for the arrangements, and thereby subject it to the asset limitations affecting SSI recipients. State Medicaid agencies may limit the amount of burial. It is important to consult someone knowledgeable about the appropriate burial depending on the circumstances of the beneficiary. 

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Are special needs trust taxable? 

Generally, self-settled special needs trusts are taxed to the beneficiary as a grantor trust and may use the beneficiary’s Social Security number. Third-party special needs trusts are typically non-grantor trusts and must have their own tax identification number or EIN. Income for both trusts are taxable.