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What is a Special Needs Trust?

What is a Special Needs Trust?

By 

Jennifer Mcgee

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Updated on  

January 3, 2023
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10 Mins

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You must be aware of the Government benefits like SSI(Supplemental Security Income) and other Medicaid benefits available for people with disabilities if you have a beneficiary with special needs. You can make a Special Needs Trust(SNT) for your loved ones without making them ineligible for these government benefits.

Meaning of Special Needs Trust

Special Needs Trusts is designed to ease the lives of people with disabilities by providing them with the maximum resources available. These are generally set up by guardians or parents. 

The assets in a special needs trust do not count to be a part of your loved one’s holdings are thereby do not affect his eligibility criteria for receiving government benefits. 

These trusts are basically created to increase the quality of life of your beneficiaries with disabilities. The trustee is vested with the right to use the trust property for the benefit of the beneficiary instead of giving control to the beneficiary himself.

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How does a Special Needs Trust Works?

The trustee of a Special Needs Trust can't give the money directly to the beneficiary. There are 2 reasons behind this:

  1. Beneficiaries are not in a state to manage their lives themselves.
  2. This will make them ineligible for government benefits.

The trustee is vested with the power to utilize the trust property for the benefit of the beneficiaries by providing them with the goods and services which they need. This includes the expenses for Travel, Education, Recreation, Personal care, etc.

But the trustee is required to spend the money in the best interest of the beneficiaries and as per the terms of the trust specified by the Grantor. 

What Is Supplemental Security Income (SSI)?

Supplemental Security Income(SSI) is a federal program in the United States of America that provides additional income to the following groups of people:

  1. Older people
  2. People with disabilities
  3. People with limited income

This program is administered by the U.S. Social Security Administration (SSA) to provide the eligible groups specified above, with monthly payments to meet their basic needs. 

For the year 2022, SSI pays a maximum of $841 in one month to eligible individuals or $1,261 to couples.

What are ABLE Accounts

ABLE stands for Achieving a Better Life Experience Accounts. These are tax-exempted savings accounts that are available for people who are diagnosed with a disability before the age of 26 years. These accounts are managed by the States and not the U.S. Federal government. 

The contribution in ABLE accounts can be made by any person including the account beneficiary, family, friends, Special Needs Trust, or Pooled Trust. The contribution limit set up in the year 2022 is $16000. And for 2023, it is $17000.

Who needs Special Needs Trust? 

Following are the category of people who needs this trust.

  • People with Permanent Special Needs
  • People who require Special Needs right now but may not need it later
  • People who may need Government benefits like SSI or Medicaid benefits at a later stage
  • People who are currently eligible for SSI or Medicare
  • People who cannot manage their financial affairs themselves

Who can be a trustee of the Special Needs Trust?

Being a trustee of a Special needs trust is not an easy task. It demands time, skills, familiarity, and empathy with the beneficiary, to work in the best interest of the beneficiary to provide them with a good life.

The trustee of the SNT is required to make sure that the beneficiary is attaining the government benefits and that the trust is used to supplement these benefits. 

Anyone can be a Trustee of an SNT except the beneficiaries as the beneficiaries of an SNT are already in a state which requires assistance from other people to manage their life. Under no circumstances the beneficiaries of an SNT can be vested with the right to handle the trust assets as a Trustee. 

When does a Special Needs Trust end?

A special needs trust ends in the following circumstances

  1. When the beneficiary dies
  2. When all the funds of the trust have been utilized for the benefit of the beneficiaries.

ABLE Accounts v. Special Needs Trust

ABLE Accounts

Special Needs Trust(SNT)

Tax-exempted savings accounts

A type of Living Trust which is taxable each year.

Eligibility: 

Available for people diagnosed with a disability before the age of 26 years

Eligibility:

First-party SNT- Individuals receiving SSI and Medicaid below the age of 65. 

Third-party SNT - No age limit.

The contribution limit set up in the year 2022 is $16000.And for 2023, it is $17000.

No limit

Managed by the disabled person himself

Managed by the Trustee.

Can be funded by anyone. For example, friends, family, the beneficiary himself, SNT, etc. 

First-party SNT- Can be funded by the assets/income of a person with a disability and who is the beneficiary of the Trust.   

Third-party SNT- Can be funded by anyone other than beneficiary

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Frequently Asked Questions

What is supplemental security income(SSI)?

It is a program that provides money to disabled adults and children on a monthly basis.

Does a Special needs trust prohibit a person from receiving SSI or other Medicaid benefits from the Government?

No. Unless you leave cash directly to your disabled beneficiary, an Special Needs Trust will not make a beneficiary ineligible for government benefits.

Special Needs Trusts are Revocable or Irrevocable?

First-party Special Needs Trusts need to be Irrevocable while Third-Party Special Needs Trusts may be revocable or Irrevocable.

Can I transfer cash to a Living Trust?

No. You cannot add cash directly to a Living Trust. You will need to put them into a bank account and then add that bank account to the Trust.

What is an Estate tax?

Estate Tax is a tax levied upon an estate depending upon the current value of its assets.
Jennifer Mcgee
Parent to five young children. Expert in Estate Planning, Probate, and Family Law Matters. Volunteer with Victim’s Advocates in the local sheriff's department...
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