Betty and Lauren discuss the importance of special needs trusts.
People with intellectual and developmental disabilities (IDD) and their families often must find a way to save without losing public benefits that a person with IDD receives. Special needs trusts are one tool that can be used to help people pay for the things that they may need and want in their lives.
Why should we consider getting a special needs trust?
By using a special needs trust, people with IDD and families can ensure that there is ongoing financial support for the things people with IDD need and want, even after parents or caregivers have passed away.
Medicaid and Supplemental Security Income (SSI) also have limits on how much a person may earn and how much they may have in assets. If a person goes over those income or asset limits, he or she may lose those benefits and vital services may stop. Special needs trusts are legal tools that can help manage funds without losing these benefits.
Families should consider how special needs trusts fit into their plan to finance the future and whether this is the right way for the family to save. Some families may decide to create both a special needs trust and an ABLE account. Other families may use only one.
What can a special needs trust pay for?
Special needs trusts are supposed to be used to purchase goods and services not covered by public benefits. Some examples are:
- Medical costs that are not covered by Medicaid or Medicare, such as some dental care and special therapies
- Service animals and some assistive technology expenses
- Computers, phones, and other personal communication devices
- Family trips and other recreational activities
- Car insurance
What options are there for a special needs trust?
Pooled Special Needs Trust: Managed by a non-profit organization. Individual accounts are established for each beneficiary. The accounts are pooled together for investment purposes. The fees are typically lower than for an individual trust and may not require as much money to open an account. Beneficiaries or a designated representative make requests to use the trust money. The pooled trust manager will decide whether to approve the request. The pooled trust manager is responsible for complying with federal and state laws regarding special needs trusts.
- Watch this video in plain language to learn more about pooled special needs trusts. (The video is also available in Spanish.)
- Learn which chapters of The Arc manage a pooled trust near you
Individual Special Needs Trust: Established privately by the individual or family. The individual or family chooses who they want to manage the trust. They can choose a professional trustee, a family member, or a friend. Whoever serves as trustee is responsible for complying with federal and state laws regarding special needs trusts.
How do we fund a trust?
A trust can be funded in two ways:
- First-Party Trust: A person with IDD can fund a trust with their own money, such as from a job, lawsuit, or lump sum payment from Social Security. Generally, money left in a first-party trust after the person with IDD dies must be used to repay Medicaid. However, pooled trusts may be able to keep some of these funds to support other beneficiaries.
- Third-Party Trust: The trust can also be funded with someone else’s money, such as a gift, inheritance, or the proceeds of life insurance. The person or family chooses who receives any money left in the account when the person dies, such as other family members.
You may be able to set up a special needs trust, especially for the proceeds of a life insurance policy or a will, before you have the money to fund it. Once the funds are available, they can be put into the trust. Make sure anyone who wants to leave a person with IDD money in a will understands that placing the funds into a special needs trust rather than giving them to the person directly may help protect their public benefits.
For a trust to qualify as a special needs trust and protect a person’s public benefits, the trust must be set up and funded properly. Therefore, it’s important to work with an attorney who understands special needs trusts when figuring out what will work for your family. You can find an attorney near you in our online Resource Directory.