Special needs trusts are designed to enhance the quality of life of a person with a disability by maximizing the resources available to them. The purpose of a special needs trust is to preserve a person's eligibility for Supplementary Security Income (SSI) and Medicaid—programs that pay for food, shelter, and medical care but typically require low income and assets to qualify—while still keeping funds to help pay for additional things that make life better.
Learn more about the basics of special needs trusts.
Who is eligible for a special needs trust? You can make a special needs trust for anyone you like, so the primary question to ask is not who qualifies for a special needs trust, but whether the benefits (having a trusted person or trustee in place to manage the funds, retaining eligibility for government programs, and so on) are worth the tradeoff: your loved one won't have direct access to the funds in the trust.
Special needs trusts can work for a variety of people. This includes people with permanent or temporary special needs, people who may someday have special needs, anyone who currently receives SSDI or Medicare but might later benefit from SSI or Medicaid, as well as anyone who is unable to manage their finances on their own. These categories of people are discussed below.
Special needs trusts are most commonly used for people who likely will need government assistance from the SSI and Medicaid programs because of a permanent or severe disabling condition.
Not all persons with a disability qualify for SSI or Medicaid. Someone who is commonly understood to be "disabled" may not qualify for these public benefits if, despite the disabling condition, the person is able to earn a living.
People with blindness, developmental disabilities, Down syndrome, organic brain damage, chronic mental illness, physical paralysis (paraplegia), or congenital disabling afflictions such as cerebral palsy or cystic fibrosis have been the most common automatic beneficiaries of government benefits for persons with disabilities. But there are many other physical and mental conditions that meet the Social Security Administration's definition of disability and that are likely to last a lifetime.
Learn more about Social Security Disability and SSI.
Many factors make it hard to predict whether someone who currently has a disability will always need to rely on SSI and Medicaid. Many disabling conditions are not permanent, and changes in the workplace, new treatments for disabilities, and new technologies for those living with disabilities may affect whether your loved one will need government benefits in the future.
While you may not be able to know with certainty whether your loved one will continue to need SSI or Medicaid, you can create a special needs trust without worrying that you will needlessly tie up your loved one's inheritance. Most special needs trusts take into account the possibility that the trust, for whatever reason, may not always be necessary, and they give the trustee power to terminate the trust if that is the best for the beneficiary.
Some people who aren't disabled now may need assistance from SSI or Medicaid at some point because of a condition that is likely to get worse. In this situation, creating a special needs trust involves some guesswork. But if you think it's more likely than not that a loved one will need government assistance for a significant length of time, it makes sense to set up a special needs trust now. In the trust, you can give the trustee the power to terminate the trust if it is not needed.
A loved one who receives Medicare or Social Security Disability Insurance (SSDI) may not need a special needs trust because these programs do not base eligibility on the amount of money or assets an applicant has. However, it's worth asking whether your loved one might someday qualify for, and benefit from, SSI or Medicaid. If the current SSDI payment is low, SSI may be a valuable way to supplement your loved one's income. And Medicaid may be necessary to provide benefits not included in the Medicare program—for instance, long-term nursing home care.
You can also learn more about long-term care planning in Long-Term Care: How to Plan and Pay for It, by Joseph Matthews (Nolo).
People who are unlikely to be able to manage an inheritance on their own are good candidates for a special needs trust, even if you are fairly certain they ultimately won't need SSI or Medicaid. Such trusts are often called "spendthrift" trusts when used to keep assets out of the hands of a beneficiary (and of his or her creditors) and in the firm control of a trustee. For example, someone with mild developmental disabilities, mild autism, attention deficit disorder, or bipolar syndrome might benefit from a trust that prevents reckless spending of inherited money even in the absence of a condition that typically falls under the definition of "disability. (Read more about Spendthrift Trusts.)
Another good reason to use a special needs trust is to prevent a loved one with a disability from being the victim of predators. There are many unscrupulous and dangerous people out there who will target a person with mental or physical disabilities if they believe the person has money. A special needs trust prevents a person with a disability from falling prey to these predators because the person with the disability does not have control over trust funds.
To learn more about special needs trusts, go to the Special Needs Trusts section of Nolo.com.
Excerpted from Special Needs Trusts, by Steven Elias and Kevin Urbatsch (Nolo).