What is a Special Needs Trust?
A Special Needs Trust is created for individuals with special needs that are recipients of public benefits and who receive assets that would otherwise make them ineligible for these public assistance benefits. The intention of creating the Trust is to preserve those benefits and provide supplemental income in order to provide a higher quality of life to those individuals.
There are two types of Special Needs Trusts that can be established, such as: First-Party Special Needs Trusts and Third-Party Special Needs Trust.
1. First Party
First party Special Needs Trusts are funded with assets that belong to the trust beneficiary or to which the beneficiary was legally entitled (e.g., assets from an award or settlement, etc.). These trusts must include a provision requiring payback to Medicaid (Medi-Cal in California).
First party Special Needs Trusts are classified as either (d)(4)(A) SNTs 1396p(d)(4)(A) or Pooled Special Needs Trusts 1396p(d)(4)(C):
- A (d)(4)(A) Special Needs Trusts can only be established for a disabled individual under the age of 65.
- A Pooled Trust can be established for a disabled individual of any age, and must be established and managed by a non-profit association. A separate account is maintained for each beneficiary, but funds are “pooled” together for investment purposes.
Some examples of common expenses for which the trustee of a SNT can pay are:
- Medical equipment not covered by Medicare or Medicaid
- Insurance premiums (health, dental, auto, homeowner’s, etc.)
- Therapy, Medications and Alternative Treatments
- Vehicle, Insurance, Maintenance and Gas
- Custodial Skilled Nursing or Companion Care
- Life coaching
- Therapy, Counseling or Case management
- Travel and Entertainment
- Home renovations to improve accessibility
- Furniture and home appliances (as they relate solely to the beneficiary)
- Clothing
- School or camp tuition, tutoring and books
- Television, computers and electronics
- Phone, cable and Internet service (beneficiary’s pro-rata share only)
- Taxes
- Pre-paid Burial/Funeral Arrangements
- The items on the list are not exhaustive, but rather illustrative as a SNT can pay for a great many items on the beneficiary’s behalf to increase his or her quality of life.
2. Third Party Special Needs Trusts
Third party Special Needs Trusts are funded with assets belonging to a person other than the trust beneficiary, and to which the beneficiary never had possession or legal interest. Third party trusts are not subject to recovery by Medicaid (Medi-Cal in California).