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Special Needs Trusts

Estate Planning Lawyer Facilitating the Goals of Nashville Residents

Special needs trusts are used to protect assets such that they benefit a disabled person but will not disqualify them from needs-based government benefits. If you have more than a certain amount of income or assets, you can lose out on qualification for Medicaid, for example. Even a gift can be disqualifying, unless it is protected in a special needs trust. If you need to create a special needs trust, you should consult a Nashville estate planning attorney. Randy Ratliff is an experienced attorney who can help you set up a trust for a loved one or you.

Types of Special Needs Trusts

Generally, you can be disqualified from SSI or Medicaid if your assets are in an ordinary trust. This is because in most cases, the assets are considered available to pay for your medical care and other needs, so you do not "need" help from the government. When you set up a special needs trust for yourself, a trustee is directed not to distribute funds for medical care and basic support if a government program is otherwise able to pay. Therefore, the trust funds are used in other ways, such as for supplemental needs involving the quality of your life.

A trustee of a special needs trust is authorized to pay for what is not covered by Medicaid and SSI. However, the trustee must be knowledgeable about the restrictions on distributions and how to make those distributions in order to preserve the purpose of the trust. If the trustee does not have this information for the purpose of administering the trust funds, a beneficiary can lose government benefits, and the trust assets may be depleted by covering basic medical care and support.

There is a type of special needs trust that is established with the disabled person's own money and property, under certain restrictions. This is sometimes called a Medicaid payback trust, a self-settled trust, or a first-party trust, and it is authorized by 42 U.S.C. Sec. 1396p(d)(4)(A).

A first-party trust is established with your own assets and protects your eligibility for public benefits if you established and funded the trust before turning 65, and the trust is irrevocable and established for your supplemental needs as a disabled person. The trust instrument needs to state that discretionary distributions should be made solely for the disabled person during their life. Additionally, the trust needs to include a provision for paying back the Medicaid system if the beneficiary dies and there are remaining funds in the first-party special needs trust.

Often, disabled family members are helped by friends or family who may want to give them money for daily living expenses. However, a single gift can disqualify a disabled person from collecting Medicaid or Social Security benefits. In some cases, it is appropriate to set up a third-party special needs trust to deal with this potential problem.

A “third-party” special needs trust can be created to receive gifts from friends and family for the disabled person's benefit, such that they are not disqualified from receiving public benefits. A third-party special needs trust is established by one person for someone else's benefit when that other person has a disability. The purpose of it is to provide supplemental funds to the disabled person without disqualifying them from public benefits. The trustee can be a spouse, child, or other relative of the disabled person and beneficiary. They will decide whether to pay for services and how to invest the assets, and the beneficiary does not have the ability to force distributions to be made.

The person who establishes the third-party special needs trust can designate who else will be a beneficiary of the trust. There is no age limit, so this trust can be established when the beneficiary is already 70 or 80 or 90, rather than under 65. There is no requirement of paying back Medicaid. The trustee has broader authority and need not make distributions only for the disabled beneficiary's benefit. When the beneficiary dies, the trustor's wishes are followed in distributing what is left in the trust.

Explore Your Potential Options with an Attorney in Nashville

Whether you are an elderly disabled person hoping to set up a special needs trust, or you are a trustee concerned about your obligations while handling the funds in a special needs trust, Attorney Randy Ratliff may be able to assist you. He helps clients throughout Davidson and Williamson Counties, including in Nashville, Brentwood, Goodlettsville, Joelton, Franklin, Cool Springs, Antioch, Hermitage, and Madison. Contact us by calling 615-656-8282 or submitting our online form to arrange an appointment with an estate planning lawyer.