Special Needs Trust: Eligibility Requirements and Use Cases

HomeTrusts and Asset ManagementSpecial Needs Trust: Eligibility Requirements and Use Cases

One question we often get from personal injury attorneys with settling cases is: “Who is eligible for a special needs trust and who isn’t? And in what situations should I worry about it?”

A client receiving needs-based government benefits like Medicaid or SSI can lose these benefits once they receive a settlement check. One way to protect their eligibility for these benefits is through the use of a special needs trust.

What is a Special Needs Trust and What are the Different Types?

A special needs trust is a legal arrangement that provides the physically or mentally handicapped to receive additional financial support without the risk of losing their eligibility for disability benefits, such as SSI or Medicaid. In addition, a special needs trust is also a fiduciary relationship, which means that a person or organization is responsible for managing the assets of the beneficiary.

The two types of special needs trusts are:

  • First-Party Special Needs Trust: This type of trust consists of the beneficiary’s own assets, such as funds received from an inheritance or a court settlement.
  • Third-Party Special Needs Trust: Unlike a first-party special needs trust, a third-party special needs trust typically consists of assets that belong to the beneficiary’s family, relatives, or friends.

How Can a Client Become Eligible for a Special Needs Trust?

The following are the eligibility requirements to create a special needs trust for the client:

  1. The client is aged 64 years old or younger.
  2. The client has been deemed disabled by the Social Security Administration.

If you have a client who has a disability and is 64 years old or younger, they are eligible to establish a special needs trust.

There was a previous requirement that the special needs trust had to be established by a parent, a grandparent, or the court, but this was recently changed. Assuming the client is mentally competent, they can establish their own special needs trust if they fit the requirement. 

Conclusion

If you’ve got a client that meets the requirements and wants to protect their Medicaid and SSI benefits when they receive a settlement, you might want to establish a special needs trust for them. It’s a perfect opportunity for clients to protect needed benefits while they receive the settlement funds in a trust that can give them peace of mind and improve their quality of life.

If you have any questions about special needs trust, feel free to give us a call.

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