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If you or your spouse has special needs, you know that it can be costly to ensure that your or their needs are met, especially if you’re dependent on public benefits such as Medicaid or Supplemental Security Income (SSI). While it can be costly to afford basic expenses along with all of the treatments and equipment you need that aren’t covered by insurance, the income requirements to remain eligible for critical public benefits mandate that recipients have few to no assets in their name.
Fortunately, trust law provides options for individuals with special needs to create accounts that can provide crucial support for living expenses without rendering them ineligible for Medicaid or SSI. A special needs trust might be the solution to help you and your family make ends meet while remaining eligible for public benefits. Learn more about special needs trusts below and contact an experienced Florida elder and special needs lawyer for more information.
Special needs trusts are a type of financial account that can be used to cover the living expenses and educational needs of persons with special needs, all without rendering them ineligible to receive public benefits. The theory behind these accounts is that a trustee is charged with ensuring that any funds held on the beneficiary’s behalf are spent only on worthwhile, life-supporting expenses such as medical devices and treatment, living expenses, and education- or career-related expenses.
Special needs trusts come in two main forms: they can be third-party trusts or first-party trusts. First-party special needs trusts, also known as self-settled special needs trusts, are funded with the beneficiary’s own assets. These funds can come from a variety of sources, such as the settlement of a personal injury lawsuit, the proceeds from a divorce, or an inherited gift. While the funds are the beneficiary’s, the beneficiary does not control how the funds are spent. Instead, the trustee controls their disbursement for permissible expenses.
A third-party trust operates in a similar fashion, except that the trust is funded by someone other than the beneficiary, usually a parent or grandparent.
There are certain limitations on self-settled special needs trusts. First, there are age restrictions. No one over the age of 65 can create a self-settled special needs trust. The trust must already exist prior to the beneficiary’s 65th year. Second, unlike a third-party special needs trust, a self-settled special needs trust is subject to Medicaid estate recovery. In other words, if there is money left over in a self-settled special needs trust when the beneficiary passes away, the trustee must freeze those assets and find out from the Centers for Medicare & Medicaid Services how much in total was spent by Medicaid on the deceased person’s medical treatment over the course of their lifetime. The trust must pay this amount back before any of the remaining funds can be distributed to the deceased person’s heirs. Third-party trusts are not subject to this practice, known as Medicaid estate recovery or Medicaid Payback Obligation.
Another difference between third-party and first-party special needs trusts is the revocability of each type of trust. Third-party trusts are revocable, meaning that the person funding the trust (known as the grantor) can revoke or terminate the trust at will, which they may choose to do if the recipient is no longer suffering from a disability or if there are other significant changes to either individual’s circumstances. In contrast, self-settled special needs trusts are irrevocable. Once the trust is created, the beneficiary cannot change the terms of the trust or take the assets out of the trust.
One alternative to a self-settled trust that Medicaid and SSI recipients might consider is the pooled special needs trust. These trusts pool together the assets of numerous public benefit recipients with special needs, in this way reducing trust administration costs. When a beneficiary who is a member of the pool dies, any funds remaining from the amount they contributed to the pool can be used to pay back the costs of their care from Medicaid, or they can be contributed to the pool to provide care for members of the pool whose funding has been depleted.
If you or someone you love might benefit from a Florida special needs trust, contact the knowledgeable and compassionate West Palm Beach elder law and special needs law firm Shalloway & Shalloway for a consultation.