Special Needs Trusts (also known as "Supplemental Needs Trusts") allow a disabled person to receive gifts, lawsuit settlements, or other funds and not lose eligibility for government programs such as Medicaid and SSI. Special Needs Trusts are drafted so that the funds will not be considered to belong to the beneficiary in determining eligibility for public benefits; they are designed to be supplemental rather than to provide basic support. Their purpose is to pay for comforts... and luxuries that could not be ordinarily paid for by public funds. These trusts typically pay for things like education, recreation, travel, entertainment, counseling, and medical attention beyond the simple necessities of life. While a trust can grant the trustee with discretion to provide basic as well as supplemental needs, great care must be taken in the drafting so that benefits are not inadvertently removed due to the existence of the trust.
Supplemental needs can include medical and dental expenses, specialized equipment such a specially equipped van, training and education, insurance, transportation, electronic equipment and appliances, computers, vacations, movies, payments for a companion, and other self-esteem and quality-of-life enhancing expenses.
There are two basic types of Special Needs Trusts: self settled or grantor trusts, and third party trusts. A self-settled trust is frequently established by individuals who become disabled as the result of an accident or medical malpractice and later receive the proceeds of a personal injury award or settlement. A third party trust is usually created by a parent or other family member for a child with special needs, either during their life or set up in a Will.
While relatively simple in concept, the drafting and administration of Special Needs Trusts is subject to numerous complex administrative regulations, and Special Needs Trusts have varying tax implications for the beneficiary.
Congress recently passed the ABLE Act, and Gov. Inslee signed it into law recognizing ABLE Accounts here in Washington in 2015 (Idaho does not yet recognize ABLE Accounts, unfortunately). While this is a tremendous accomplishment, like all things, no one thing will be right for everybody. A properly drafted and implemented Special Needs Trust may still be a better vehicle for asset protection for those with disabilities.
If you have questions about Special Needs Trusts or ABLE Accounts, give us a call at 253.858.5434 to see how we can be of service to you, your family, friends, neighbors, or co-workers.