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Special Needs Trusts: Creating Financial Stability

Special Needs Trusts, Trusts

To remain eligible for public assistance, someone who is disabled or unable to manage their own finances may need to take certain legal action related to their assets. This is crucial because benefits provided by Social Security, Supplemental Security Income, Medicaid and other programs could be jeopardized should this individual acquire  assets over these program’s limits.

There are three options available to help protect benefits while also ensuring there are funds available to care for the person in the future.

ABLE (Achieving a Better Life Experience) Accounts

The ABLE Act, enacted in 2014, allowed for the creation of ABLE accounts, also known as 529 ABLE or 529A accounts. A tax-advantaged savings account for eligible people with disabilities, an ABLE account will not affect SSI, Medicaid and other public benefits programs eligibility. Funds from the ABLE account can be used to pay for qualified disability expenses to support the health, independence and quality of life for someone who is disabled.

An ABLE account can be funded with up to $15,000 a year. An ABLE account is only for people who became disabled before age 26 and whose disability meets the Social Security Administration’s definition and criteria, and a licensed physician must complete a certification. ABLE accounts can be set up and administered by the disabled individual, making it easier to maintain independence by allowing the account holder to access the funds. Any funds remaining in the ABLE account after the owner’s death must be used first to repay Medicaid.

Timothy Rice Estate and Elder Law Firm attorney Kimberlie Fiero discusses ABLE accounts more in this video.

Special Needs Trusts

A special needs trust, when drafted and managed correctly, will not affect eligibility for public benefits programs. Sometimes called a first-party trust or a self-settled trust, these irrevocable trusts contain the disabled individual’s own assets. The trust is managed by an appointed trustee who makes distributions for the sole benefit of the beneficiary (the disabled individual).

Special needs trusts cannot be established after the beneficiary turns 65. Likewise, any funds remaining in the trust after the beneficiary dies is reverted to Medicaid for repayment.

Third-Party Trusts

Also known as a supplemental benefits trust, a third-party trust is similar to a special needs trust in some ways. However, there are many distinct differences such as: It can be funded with assets from a donor (a third party), such as a family member or friend; the trust’s funds can be used for anything the beneficiary needs; when the beneficiary dies, the assets can pass to the donor’s other relatives or somewhere else and third-party trusts don’t carry age restrictions.

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