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A Quick Explanation of Special Needs Trusts

Were you aware that there are about 75 million people in the United States with disabilities? That’s about 25% of the population!  Did you know that 53% of disabled people are over the age of 50?  The U.S. Census Bureau has labeled disabled Americans the country’s largest minority population.

Consider this story from a recent New York Times article: According to a survey from the Center for Disease Control and Prevention and the Health Resources and Services Administration, the likelihood of a school-aged American child receiving a diagnosis of autism, Asperger’s syndrome or a related developmental disorder increased 72% from 2007 to 2011.  It’s no wonder that the need for special needs trusts are on the upswing.

A special needs trust is sometimes called a supplemental needs trust or third party special needs trust. It is a trust set up to provide financial care for a disabled/handicapped person who cannot work or who cannot adequately manage any money they might inherit.  Disabilities can cover a wide spectrum; autism, multiple sclerosis, cerebral palsy, cancer, psychiatric disorders, ALS, Alzheimer’s, etc.

The main reason special needs trusts are necessary is because the majority of disabled and handicapped individuals receive government benefits, such as Supplemental Security Income (SSI), Medicare, Medi-Cal, Section 8 Housing, etc.  In order to qualify for these assistance programs there are strict income and resource requirements. If a disabled or handicapped person receives a gift or inheritance outright it can jeopardize their eligibility for those programs. Once you are non-eligible, it is very difficult to re-qualify.

The very unfortunate situation is that it is difficult for a handicapped person to survive on public benefits alone. With the special needs trust, supplemental money, gifts, inheritance, etc. are given to the trust and not the disabled or handicapped person directly.  A trustee can then use the money for the disabled or handicapped person who is the beneficiary of the trust. The money is never technically given to the disabled beneficiary who never technically “owns” it. As a result, government benefits are not jeopardized.

Anyone can set up a special needs trust. Usually it is the parents or a parent but it can be grandparents, aunts, uncles, or siblings.

The trustee will use the funds to support and help the beneficiary without jeopardizing their government benefits.  Trustees are required to keep up with the law, pay taxes, keep records, and keep up to date with the disabled beneficiary’s needs.  A special needs trust is required to get a tax ID number for the purpose of paying taxes and usually a trust account is set up.  The job is not for everyone so special attention should be given when choosing the trustee.

A trustee can spend funds for the beneficiary’s needs on a wide variety of goods and services such as personal care attendants, vacations, home furnishings, computers, out of pocket medical and dental expenses, vehicles, education/continuing education, pet care, clothing, furniture, etc. A trustee is not supposed to spend money on food and shelter (which comes from federal or state benefits) but there are exemptions.

A special needs trust ends when the trust funds are depleted, the beneficiary no longer needs government benefits, the beneficiary is no longer eligible for government benefits or the beneficiary dies.

The world of special needs trusts can be complicated and emotional. It is wise to seek an attorney’s guidance to navigate in this area.

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2890 N. Main Street, Suite 206
Walnut Creek, CA 94597

925.943.2740

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