What is a Special Needs Trust?

A “Special Needs Trust” is a trust established to benefit a person with a disability. The purpose of this trust is to supplement the government benefits they receive without disqualifying the disabled person from eligibility for such benefits.

Disabled people can qualify for various government programs that help with their support, such as Medical Assistance, Supplemental Disability Income, and more.  Most of these programs are “needs-based,” meaning that the recipient must meet income and asset limitations to qualify.

Occasionally, a disabled person who is receiving government benefits may suddenly receive money, perhaps through an inheritance or a settlement due to a car accident or a medical malpractice suit.  This additional money can impact program eligibility.  However, Minnesota allows the creation of a Special Needs Trust, where the disabled person may place the money that they have inherited or received.  The money in this Trust is disregarded for the purposes of determining whether the person qualifies for the governmental programs.  However, the money is still there to be spent on things that the government will not pay for or that would otherwise be too expensive for the disabled person.  Examples can range from vacations to upgraded wheel chairs.

A Special Needs Trust has several technical requirements.  The beneficiary must be disabled and under age 65 when the trust is established.  The trust has to be established either by the disabled person’s parent, grandparent, or legal guardian, or by the court.  The trust may then be funded by the assets of the disabled person or the disabled person’s spouse, including assets that they are entitled to but have not yet received.  The trust may also contain assets of other individuals, although it might be better for such persons to have established a Supplemental Needs Trust.

The trust must be irrevocable and solely for the benefit of the disabled person, with a few select exceptions.  Distributions can only be made by the trustee purchasing items or services directly from a third party on behalf of the disabled person.  The money in the trust may not be used to replace or duplicate money that a governmental program would otherwise provide.  If the disabled person receives Supplemental Social Security, the money cannot be used for shelter or food.  Use for clothing may also be problematic. 

Once the beneficiary has died, any assets remaining in a Special Needs Trust go to Medical Assistance to repay any amounts that Medical Assistance has spent on the beneficiary.  Only if the Medical Assistance claim does not completely exhaust the assets of the trust can the family or another beneficiary get any money from the trust.

If you are interested in creating a Special Needs Trust, or discussing your other financial planning options, please contact Tarrant & Liska.