Special Needs Trusts are funded with the assets of a special needs or disabled beneficiary and are intended to preserve eligibility for Medicaid (Medical Assistance), Supplemental Security Income (SSI) and other government benefits. The beneficiary may have obtained the assets by settling a personal injury case, winning the lottery or inheriting money from a family member who failed to do proper estate planning. Unless these assets are put into Special Needs Trusts, the special needs beneficiaries could lose important government benefits.
Trustees of Special Needs Trusts have complete discretion as to the use of income and principal to supplement, but not supplant, the benefits and income provided by Medicaid, SSI and other governmental aid programs. There are two (2) types of Special Needs Trusts – one is known as a Payback Special Needs Trust or a “d4A Trust” and the other is known as a Pooled Trust or a “d4C Trust.”
Payback Special Needs Trusts can only be established by a parent, a grandparent, a guardian, or a court, provided that the special needs beneficiaries are under sixty-five (65). On the other hand, disabled beneficiaries can join Pooled Special Needs Trusts themselves, which have been established by a non-profit organizations.
When the special needs beneficiary passes away, the money still in the payback trust goes to pay back Medicaid and then, any funds remaining can be distributed to the beneficiary’s heirs. With Pooled Trusts, any money remaining stays in the Pooled Trust to help other similarly situated special needs beneficiaries.
It is best to plan ahead when special needs beneficiaries are about to receive assets to determine if Special Needs Trusts are necessary to help protect their government benefits.