If your child is disabled because of a preventable injury and a financial settlement is on the horizon, then you may want to seriously consider directing the settlement proceeds to a Special Needs Trust.
Special Needs Trusts are legal arrangements that help manage financial resources for children and adults with special needs. There are three main types, all of which come with certain advantages and are designed to protect special needs beneficiaries from losing access to important public benefits. In this article we want to provide you with more insight into this type of planning to determine if it is right for you and your loved ones.
A “first-party” Special Needs Trust, or “self-settled” trust, is tailor-made for personal injury or medical malpractice settlements. They allow for disabled beneficiaries to own the assets placed in trust. This works for personal injury settlements in much the same way as it would for a protected inheritance from a parent or grandparent.
Low-income and asset eligibility criteria typically bar people with even modest monies from receiving important benefits like SSI and Medicaid benefits. A first-party Special Needs Trust, however, can shield the disabled beneficiary both now and in the future as long as the trust is used for expenses that supplement the basic services provided by government programs.
One potential downside can be that Medicaid benefits would need to be repaid from remaining funds in the first-party trust at the time of the beneficiary’s death.
A “pooled trust” is an investment-oriented variation on the first-party Special Needs Trust. They’re typically established by independent organizations, often nonprofit institutions, and “pool” together individual Special Needs Trust accounts within a larger trust.
Combining numerous accounts into a single trust creates more overall investment security and allows for high-level financial management services that singular trusts may not be able to afford. In many cases, each individual account is still owned by its original beneficiary.
“Third-party” Special Needs Trusts are funded with assets that do not belong to the special needs beneficiary. Although this runs counter to settlements paid directly to disabled individuals, they work well in conjunction to first-party and pooled trusts as they allow for family members and others to contribute to assets.
There’s no limit to how big a third-party trust can be, and it can be used to pay for anything other than basic needs provided through government programs. It also does not require Medicaid to be reimbursed at the time of the beneficiary’s death.
Does this article raise more questions than it answers for you? Are you a Florida senior looking to find ways to leave money to a disabled child or grandchild without disqualifying him or her for benefits? If you have this or any other elder law question, do not wait to contact us to schedule a consultation.