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Frequently asked questions about Special Needs Trusts PDF Print E-mail

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Frequently asked questions about Special Needs Trusts:

SSI – or Supplemental Security Income – is a federal supplement program (administered by the Social Security Administration) for people with assets below $2000 and little or no income who are disabled and/or elderly. SSI helps pay for basic needs, such as food, clothing and shelter.

Medicaid is the federal program that provides for health care coverage.

With food, clothing, shelter and health care covered by these public benefits, a special needs trust is a private fund set up to pay for life’s “extras”; managed by a trustee of your choosing, it’s used to enhance the lifetime of someone with disabilities, providing for a variety of supplemental goods and services to help the beneficiary, such as: wheelchairs, handicap-accessible vehicles, mechanical beds, personal attendants, recreational and cultural activities, as well as the purchase of a home – comforts that are not readily available.

A person with special needs can have either a first-party trust or a third-party trust.

A first-party trust is also known by a few other names: payback trust; self-settled trust; or D4A trust, after the section of federal law establishing it.

A first-party special needs trust is funded by the beneficiary’s money – a personal injury settlement, inheritance, alimony, etc. If a disabled person receives a lump sum such as this, it disqualifies the person for public benefits (e.g., SSI and Medicaid) now and in the future, since it is an increase in assets. Setting up a first-party special needs trust enables the beneficiary to retain the additional finances in this life-enhancing trust.

A third-party special needs trust is funded by someone other than the beneficiary – gifts/inheritances from a parent, grandparent, other family member or friend. Here, public benefits are not jeopardized, and gifts into the trust can be made throughout the beneficiary’s life. Friends and family can even name this type of special needs trust in their will, thereby contributing additional funds at their death.

No. If you set up a trust for your child (a third-party trust), your child cannot direct how the money is spent. Your chosen trustee oversees management of the trust. If your child had access, he or she would be disqualified from do to the receiving public benefits due to the assets limits.

A payback trust is another name for a first-party trust, in which funding usually comes from a personal injury settlement or inheritance. Payback refers to paying back the state from money leftover in the trust upon the death of the trust beneficiary, as a reimbursement for having received public benefits. If the special needs trust was created with money from a parent or grandparent, for example (i.e., a third-party trust), there is no payback requirement.

A trustee is responsible for managing, investing and distributing trust funds. Whoever you choose must always be mindful of the beneficiary’s special needs and best interests, reliably acting as a genuine advocate. Furthermore, the trustee should not only be someone who is skilled at managing finances and making wise investments, but also keeping proper records and making permissible distributions with trust funds. Improper distributions may reduce or terminate public benefits.


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Kearns & Kearns
1121 New Britain Avenue
West Hartford, CT 06110
Phone: 860.233.1281
Fax: 860.523.5774
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