This is part one of a three-part blog series discussing Special Needs Trusts. Over the next few weeks, we invite you to follow along as we offer a brief overview of the basics of Special Need Trusts and alternative methods to Special Need Trusts.

According to a study funded by the National Institute on Disability and Rehabilitative Research, it is estimated that over 56.7 million Americans are disabled. This number represents approximately 18.7% of the entire population of the United States (303.9 million per the 2010 U.S. Census).Of these individuals, approximately 38.3 million suffer from a severe disability (about 12.6% of the population), and about 12.3 million people aged 6 and older need assistance with one or more activities of daily living.The number of Americans with disabilities is expected to increase as the U.S. population ages. In light of the growing number of Americans with a disability, the need for special needs planning, as well as the establishment and administration of special needs trusts, is growing.

Individuals looking for guidance on maintaining or planning for public benefits often secure the help of an attorney to draft a Special Needs Trust (“SNT”). Generally, governmental benefits are designed to provide for the basic necessities of an individual such as health care, food and shelter. So, governmental benefits provide for only the minimal needs to recipients. A SNT is designed to provide additional needs and extras, like vacations, that normal governmental benefits do not provide. A SNT can either be self-settled or third-party settled depending on the source of the funding of the Trust.

The purpose of a Special Needs Trust (“SNT”) is to preserve the governmental benefits of the beneficiary while also providing a source of funds available to the beneficiary for supplemental needs. More specifically, the purpose of a self-settled SNT is to avoid both the imposition of a period of ineligibility for SSI or Medicaid because of the transfer of the resources to the trust, and the treatment of the trust as a resource for SSI or Medicaid eligibility purposes. Typically, self-settled trusts are used in tort recovery or settlements, inheritance received by the beneficiary outright (i.e. not in trust) or to hold equitable distributions in divorce or alimony payments.

Third-party SNTs permit a parent, grandparent or other person to provide for the needs of an individual with a disability that are not being met by public benefits. Therefore, in order to avoid a mandatory pay-back provision required in self-settled SNTs or to avoid the loss of public benefits, any bequest or gift to an individual with disabilities should be made via third-party SNT.

Takeaway: When establishing or administering a SNT, it is important to correctly determine the source of the funding (i.e. self-settled or third-party funds). A catch-all trust that includes both self-settled and third-party funds is prohibited. Third-party funds should never be comingled with a self-settled trust, and vice versa.

We will have our next installment in this blog series posted soon. In the meantime, if you would like to learn more about Special Needs Trusts, contact Weldy Law, PLLC, for a free initial consultation.

This blog is for informational purposes and does not provide legal counsel nor does it establish an attorney-client relationship.