Providing for a disabled heir with a special needs trust

Many Florida residents beginning the estate planning process have questions about how to provide for a family member with a physical or mental disability. If the disabled individual is receiving benefits from need-based government programs like Medicaid or Supplemental Security Income, a large bequest in a will or trust could end up disqualifying him or her from receiving benefits.

A special needs trust is an effective strategy to provide for a disabled family member without risking loss of government benefits. Assets are placed in the trust and held for the benefit of the disabled individual. Because the trust, and not the disabled individual, is the owner of the assets, these assets are not counted for purposes of eligibility for benefits.

There are restrictions on making disbursements from a special needs trust. If the trustee fails to follow these restrictions the beneficiary could be deemed the owner of the assets and be disqualified from receiving government benefits.

Special needs trusts can be either self-settled or third-party trusts. In a self-settled trust, assets of the disabled individual are placed in the trust. When the disabled person dies, the government programs that paid benefits to him or her must be reimbursed out of the assets left in the trust.

A third-party trust is set up with funds from a third party donor, typically a family member. Third-party special needs trusts can be created in a will or during the donor’s lifetime. With a third-party special needs trust it is not necessary to reimburse public assistance programs when the beneficiary dies.

The information in this post is for general educational purposes only. It is not legal advice. Drafting a special needs trust that conforms with applicable laws and regulations requires the assistance of a knowledgeable estate planning attorney.

Source: Special Needs Alliance, “Frequently Asked Questions,” accessed Feb. 13, 2014