Considerations Before Terminating a Special Needs Trust

HomeTrusts and Asset ManagementConsiderations Before Terminating a Special Needs Trust

If you set up a special needs trust for a disabled minor who is receiving Medicaid and SSI, what happens to the money inside the special needs trust if that minor gets to the point where he/she is well enough to work and generate income, and therefore lose his/her eligibility for SSI

Can you terminate the special needs trust and send all of the money to that client?

Below are some considerations to keep in mind when closing out or terminating a special needs trust.

Medicaid’s Right to be Reimbursed

One thing you need to consider when you terminate a first-party special needs trust is, if there is still money left in the trust, then at that point Medicaid has the right to come in and be reimbursed for whatever they have paid on behalf of your client.

This means that terminating a first-party special needs trust rarely makes sense in the traditional sense of “terminating” it, which is: 

  1. Closing out the special needs trust
  2. Negotiating with Medicaid
  3. Sending Medicaid their payback amount
  4. Sending whatever money is left to the beneficiary

Exhausting the Special Needs Trust

Another thing you must consider before terminating a special needs trust is, if a client no longer needs a special needs trust or Medicaid or SSI, it is best to use up the funds on appropriate items for the benefit of the beneficiary — such as a home or a car — to the point that the funds are essentially exhausted. 

Once the funds have been exhausted, the trust can then terminate without you or the client having to worry about Medicaid payback provision. In contrast, if you terminate the trust with money still in it, there is a chance that the Medicaid payback provision could necessitate most of the funds being used to pay back Medicaid (with little left over for the beneficiary).

So, if you are in a similar situation, give us a call now. We can help you determine the best way to terminate the special needs trust, while also allowing for most of the funds to benefit the beneficiary rather than having most of it go to the government.

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