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Who Qualifies for a Special Needs Trust? Ensuring Eligibility Without Jeopardizing Benefits

Who Qualifies for a Special Needs Trust? Ensuring Eligibility Without Jeopardizing Benefits
Estate Planning and Probate
Jason Neufeld
June 10, 2024

For families with loved ones coping with disabilities, special needs trusts unlock a powerful solution - providing supplemental financial resources for expenses government aid won't cover while crucially preserving eligibility for critical public assistance programs like Medicaid and Supplemental Security Income. 

However, the nuances around qualifying and properly establishing these trusts require meticulous legal guidance to avoid jeopardizing both government benefits and trust fund access.

Eligibility Requirements for a Special Needs Trust

Under federal regulations, individuals with disabilities may potentially qualify for a self-settled special needs trust (SNT) if they meet two core criteria:

  1. Their disability renders them unable to be entirely self-supporting financially
  2. The disability originated before the individual reached 65 years old
  3. If the disability began after age 65, the individual is limited to using a Pooled Special Needs Trust, which must be professionally administered.

More specifically, the Social Security Act defines "disability" for SNT qualification purposes as any "medically determinable physical or mental impairment" significantly restricting the individual's ability to engage in substantial gainful activity.

Crucially, eligibility isn't contingent on already receiving government disability benefits like SSI or Medicaid at the outset. Even if not yet enrolled, simply meeting those stringent disability standards preserves one's ability to leverage an SNT without jeopardizing future needs-based public assistance qualification.

Exceptions and Age Considerations for SNT Eligibility

A few key exceptions to those general eligibility guidelines:

For first-party self-settled special needs trusts funded using the beneficiary's own assets, the disability must have manifested before age 65. Third-party SNTs funded by others can be established for beneficiaries over 65.

Similarly, when it comes to establishing an SNT for minors or legally incapacitated individuals, court approval or input from a government benefits agency is often required to proceed.

And for those over 65, pooled special needs trusts represent another potential option depending on the specific circumstances involved in the trust's creation and funding sources used.

Understanding the Different Types of Special Needs Trusts

As you evaluate if a special needs trust aligns with your family's particular situation, grasping the distinct structures and purposes of various SNT classifications becomes crucial:

  • First-Party SNTs — Often called "self-settled" trusts, these involve using the beneficiary's own assets to fund the trust. Common funding sources include legal settlements/court judgments or sudden inheritances directly payable to the disabled beneficiary. Any Medicaid expenses paid using these trusts must be reimbursed upon the beneficiary's passing.
  • Third-Party SNTs — Also referred to as "third-party settled" trusts, the funding comes from someone other than the beneficiary - usually parents, grandparents, or other family members. These trusts allow supplementing the beneficiary's care without Medicaid payback requirements upon death.
  • Pooled SNTs — Here, multiple beneficiaries' assets consolidate into one large trust account collectively administered by a non-profit organization. Pooled trusts offer reduced overhead and simplified establishment.

Selecting the optimal SNT structure depends heavily on your family's goals, the beneficiary's age/circumstances, and the funding sources you intend to use.

Choosing the Right Type of Trust for Your Situation

As you explore which special needs trust best suits your loved one's needs, some general guiding principles:

First-party SNTs frequently make sense when the disabled beneficiary directly receives assets like:

  • Court settlements or judgments related to their disability
  • An unexpected inheritance where they were the named recipient
  • Monetary gifts given directly to them by family/friends (if there has not yet been a third-party special needs trust established)

Third-party trusts are the favored avenue if you're a parent, grandparent, friend or other party seeking to fund supplemental care for a loved one with special needs using your own assets/estate funds. This route avoids Medicaid payback rules upon the beneficiary's passing.

Pooled Trusts can offer administrative ease and efficiency if you lack the resources to establish and administer a personalized SNT. While smaller in scale, pooled trusts can provide peace of mind about a disabled loved one's future with professionally managed resources.

The Role of the Special Needs Trust Trustee

Once you've established the appropriate special needs trust, the designated trustee takes on a pivotal role as administrator and decision-maker regarding its assets and expenditures.

The trustee's core duties involve:

  • Managing the trust's funds and invested assets prudently
  • Ensuring any expenditures directly benefit the disabled beneficiary
  • Meticulously tracking all income sources, disbursements, and account activity
  • Comprehending which supplemental expenses are allowed without compromising public benefits

Annual accountings detailing the trustee's activities must demonstrate full compliance with Florida laws and federal eligibility regulations. Any expenditures construed as supplanting - rather than supplementing - government benefits could trigger harsh penalties and disqualifications.

Funding Sources and Assets for Special Needs Trusts

When initially establishing a special needs trust, the funding sources often include:

  • Directly inherited financial accounts, investments, or insurance proceeds
  • Monetary legal judgments or settlements involving the disabled beneficiary
  • Real estate or other substantial assets designated for the beneficiary's benefit
  • Gifts or assets a third party would like gifted to the beneficiary's future care

Beyond purely liquid funds, many forms of illiquid assets can also contribute towards funding the trust's principal. Trustees routinely assess whether certain life insurance policies, real estate holdings, financial accounts, or personal investments should integrate into the overarching SNT portfolio.

Specialized planning also allows certain families to begin earmarking future assets for third-party SNTs now while preserving their loved one's ability to qualify for essential public benefits when times become difficult.

No Matter Your Needs, We Guide You Through Every Consideration

Clearly, special needs trusts introduce immense complexity when it comes to structuring them properly while protecting your family's cherished government assistance. From assessing eligibility and determining the ideal trust classification to funding strategies and trustee administration - you need steady legal hands steering your journey.

At Elder Needs Law, we've devoted our practice to counseling Florida families through each special needs planning facet with the utmost care and expertise. Our firm understands just how essential these trusts can prove for loved ones requiring lifelong care and costly medical interventions.

When you're prepared to explore establishing a special needs trust, let's connect for a consultation to discuss your specific circumstances, priorities, and long-term goals.

Jason Neufeld

Jason Neufeld is the Founder and Managing Partner of Elder Needs Law, a Florida estate planning and elder law firm he created in 2017. With more than 15 years of experience practicing law, he represents clients in a wide range of legal matters, including Medicaid planning, estate planning, elder law, probate, Medicare, and life insurance.

Jason received his Juris Doctor from the University of Miami — School of Law and is a member of the Florida Bar and the Broward County Bar Association. He has received numerous accolades for his work, including being named a Rising Star and Super Lawyer by Super Lawyers and among the Florida Legal Elite by Florida Trend in 2024.

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