What is a special needs trust? Do I need it?

By: Bridget O’Brien Swartz, Esq., Vice President and Sr. Trust Officer, Camelback, Ariz. branch, First International Bank & Trust

If you have a family member or loved one with special needs and/or a disability, you understand the importance of special care and careful planning. To protect and not jeopardize government benefits, consider setting up a special needs trust. More on special needs trust services.

Defining a special needs trust

First, “special needs trust” is a broad term. This type of trust account may also be called a “supplemental trust,” “discretionary supplemental care trust”, or, in Arizona (if self-settled), “special treatment trust.”

How a supplemental trust account helps

This trust allows you to set aside money or property for the benefit of a beneficiary with disabilities/special needs. Without it, that person could lose his or her eligibility for Supplemental Security Income (SSI) and Medicaid benefits. A special needs trust, whether one that stands alone or is incorporated into your will, allows you to avoid some of these potential problems.

How a special needs trust works

Basically, you are leaving property or money to a special needs trust, where it benefits your loved one. The trust is typically managed by an independent third party, which may be a family member, friend or professional trustee. He or she has complete discretion over the trust and is in charge of spending the money on behalf of your loved one.

Benefits for basic care

The primary purpose of establishing a special needs trust is to enable the beneficiary to remain eligible for needs-based public benefits, while having funds available to supplement the benefits that the government is providing and enhancing the beneficiary’s quality of life.

In most instances, public benefits are not enough to provide for an individual’s basic support needs let alone those needs that are not covered or provided for by public benefits.

Since your loved one does not control the money, it is not treated as part of program eligibility according to SSI and Medicaid administrators. The trust ends when it is no longer needed, usually when the beneficiary passes away or when the trust funds have been used.

Critical details

An important distinction in a special needs trust is whether it is a first or third party trust. 

Next up

Our next blog post will be a more in-depth discussion of the distinction between and treatment of first vs. third party special needs trusts.

Bridget O’Brien SwartzBridget is originally from Duluth, Minnesota, earned her undergraduate degree from Notre Dame, then and her law degree as well as a Masters in Public Administration from ASU.  She has been a specialist in Estate & Trust Law certified by the State Bar of Arizona and a Certified Elder Law Attorney certified by the National Elder Law Foundation.  She remains actively involved in national attorney organizations such as National Academy of Elder Law Attorneys and the Special Needs Alliance.

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