Legal Definitions - special needs trust

A Special Needs Trust is a specific type of legal arrangement designed to hold assets for the benefit of an individual with a disability without jeopardizing their eligibility for essential government assistance programs, such as Supplemental Security Income (SSI) or Medicaid.

The primary purpose of this trust is to allow funds to be used for the beneficiary's supplemental needs and quality-of-life enhancements, while ensuring that the assets held within the trust do not count towards the strict income and asset limits imposed by these public benefit programs. A designated trustee manages and distributes the funds according to the trust's terms, rather than the beneficiary having direct control. This structure prevents the funds from being considered the beneficiary's personal assets, which would otherwise lead to a loss of vital government support. Funds from a Special Needs Trust can typically be used for a wide range of expenses, including medical care not covered by benefits, specialized equipment, transportation, education, and recreational activities, but generally cannot be used for basic food or housing costs, as these are often covered by the government programs themselves.

• Example 1: Protecting an Inheritance

  Sarah has an adult son, Michael, who has a severe intellectual disability and relies on SSI for his income and Medicaid for his healthcare. Sarah wants to leave a significant inheritance to Michael to ensure he has extra support throughout his life. If she were to leave the money directly to Michael, his inheritance would exceed the asset limits for SSI and Medicaid, causing him to lose these critical benefits. Instead, Sarah establishes a Special Needs Trust for Michael. The inheritance is placed into this trust, managed by a professional trustee. The trustee can then use the funds to pay for things like Michael's specialized therapies, adaptive technology, or enriching recreational activities, without affecting his eligibility for SSI and Medicaid.

• Example 2: Managing a Personal Injury Settlement

  After a car accident left him with a permanent spinal cord injury, David received a substantial financial settlement. While the settlement is intended to cover his long-term care, David also qualifies for Medicaid, which provides essential medical services. If David were to receive the settlement funds directly, he would immediately lose his Medicaid eligibility due to the asset limits. To prevent this, David's attorney advises him to place the settlement into a Special Needs Trust. The trust's funds can then be used by the trustee to pay for items like specialized home modifications, a custom wheelchair not fully covered by Medicaid, or a personal care attendant for hours beyond what Medicaid provides, all while David continues to receive his vital government benefits.

• Example 3: Grandparent's Gift for a Disabled Grandchild

  Mr. and Mrs. Chen want to contribute financially to their granddaughter Emily's future. Emily has a lifelong developmental disability and will likely depend on government assistance programs as an adult. They want to ensure she has access to resources that enhance her quality of life without jeopardizing her future eligibility for SSI or Medicaid. They decide to establish a Special Needs Trust for Emily. The funds they contribute to the trust can be used by the trustee for things like specialized educational programs, assistive communication devices, or even tickets to sensory-friendly events, providing Emily with opportunities and support that go beyond what government benefits can offer, all without impacting her eligibility for those crucial programs.