Understanding Special Needs Trusts and How They Protect Benefits

Why a Special Needs Trust Matters

People with disabilities often depend on government programs like Supplemental Security Income (SSI) and Medicaid to cover essential financial and healthcare needs. However, receiving a large sum of money—whether from an inheritance, legal settlement, or other source—can jeopardize these benefits. A special needs trust (SNT) is a legal tool designed to ensure that financial support is provided without disrupting eligibility for crucial assistance programs.

These trusts allow assets to be managed for the benefit of an individual with disabilities without being counted as personal resources. With the right structure, a special needs trust ensures long-term financial security without risking vital benefits.

How Special Needs Trusts Preserve Government Benefits

Eligibility for SSI and Medicaid is based on strict income and asset limits. If an individual with disabilities exceeds these thresholds, benefits may be reduced or revoked. A special needs trust addresses this concern by holding assets separately, ensuring they do not count against eligibility requirements.

A special needs trust can fund various expenses that improve quality of life, such as personal care, education, travel, and medical treatments not covered by Medicaid. Because the trust is designed to supplement, rather than replace, government benefits, it provides financial support without disqualifying the individual from receiving assistance.

Types of Special Needs Trusts

There are two primary types of special needs trusts, each serving different situations:

First-Party Special Needs Trust

A first-party SNT is established using the beneficiary’s assets, such as an inheritance or personal injury settlement. This type of trust must include a Medicaid payback provision, meaning any remaining funds must be used to reimburse Medicaid upon the beneficiary's passing. Despite this requirement, a first-party trust remains vital for preserving benefits while utilizing personal assets for additional needs.

Third-Party Special Needs Trust

A third-party SNT is created using assets belonging to someone other than the beneficiary, typically a parent or family member. Unlike a first-party trust, this type does not require Medicaid reimbursement, allowing any remaining funds to be distributed to other beneficiaries upon the primary beneficiary's passing. This makes a third-party trust an ideal option for families seeking to provide long-term financial security.

Common Mistakes to Avoid

Setting up and managing a special needs trust requires careful attention to detail. Some common mistakes can lead to unintended consequences, including the loss of benefits. One critical mistake is giving direct cash gifts to the beneficiary, which can be counted as income and impact eligibility for government assistance.

Mishandling or poorly structuring a trust can cause serious issues. For example, a family once created a trust without the proper disbursement rules, leading to their loved one losing critical SSI benefits until corrections were made. Avoiding such mistakes ensures long-term stability and uninterrupted support. Trust disbursements must align with the Social Security Administration and Medicaid rules to avoid penalties. Working with a legal professional can help ensure the trust is properly drafted and administered.

Contact The Law Office of Mark J. Keller

A special needs trust provides lasting peace of mind, ensuring financial security while protecting vital government benefits. Families can feel confident knowing their loved ones will have the financial resources they need while keeping essential benefits intact, relieving stress and uncertainty about the future. Proper planning is critical to protect loved ones and ensure long-term stability. Guidance is available to help navigate the complexities of trust creation and administration.

Waiting could put your loved one's benefits at risk. Take action today to secure their future and preserve access to vital government programs. Call 718-297-1890, email markjkelleresq@yahoo.com, or complete the contact form on the firm’s website to get started now.