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Planning for Disabled Child: A Special Needs Trust

For families caring for a child with a disability, a special needs trust is a vital planning tool that allows money to be given to a special-needs family member while also maintaining their eligibility for government benefits.

Special needs trusts, also called supplemental needs trusts, are legal devices used to supplement government benefits. Thus, disabled beneficiaries are able to receive lawsuit settlements, inheritances, monetary gifts, or other funds while not losing Medicaid or Supplemental Security Income (SSI). Funds from a special needs trust are not designed to pay for day-to-day essentials. Instead, they can be used for education, travel, medical care beyond what government benefits provide, and counseling, among other uses.

Three types of special needs trusts exist: a first-party trust, a third-party trust and a pooled trust. Each has its own advantages, but each names the disabled family member as beneficiary and is managed by a trustee, who distributes the funds to the individual with special needs.

A first-party trust is funded with the beneficiary’s own money.  The Department of Public Welfare (DPW), which administers the Medicaid program in Pennsylvania, must approve the trust and is entitled to reimbursement when the trust terminates.  A third-party trust is typically funded by the beneficiary’s parents or grandparents.  A third-party trust is not subject to DPW’s oversight or the reimbursement requirement, and so it is preferable to the first-party trust.  In some cases, early planning can allow the use of a third-party trust instead of a first-party trust.  A pooled trust can be a first- or third-party trust.  The distinguishing feature is that the pooled trust is made up of individual accounts that are invested collectively by a non-profit corporate trustee.

Choosing this trustee is among the most important decisions you will make when establishing the trust. A professional trustee is often a wise choice for a special needs trust since its oversight requires specific expertise. It’s also possible to simultaneously appoint a trust “protector,” who can be a family member or friend with personal ties to the disabled individual, in addition to the trustee. The “protector” can review transactions and accounts, as well as fire a trustee if he/she feels the decisions made are not in the best interest of the beneficiary.

A special needs trust is just one step in the planning process for families or caregivers interested in building a secure future for a special needs child. For more information on any aspect of special needs legal and financial planning, please contact Timoney Knox LLP.

Sources:

ElderLawAnswers.com

The Children’s Hospital of the University of Pennsylvania

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