When you are about to receive a settlement after you or a loved one has become permanently disabled, navigating through financial decisions correctly is critical. Medicaid and other government benefits can help pay for a great deal of necessities, but the sudden influx of settlement proceeds can mean disqualification. Fortunately, establishing a special needs trust can not only allow a disabled person to keep his or her benefits eligibility, but it can also help pay for a number of non-covered needs.
If you’re thinking about setting up a trust for yourself or a family member, you will likely hear the terms below. It is my hope that my breakdown of brief definitions will help you in navigating the trust establishment process and making informed decisions as you proceed.
Special Needs Trust
Special needs trusts, also called supplemental needs trusts, are established to supplement, but not replace, a disabled person’s government benefits like Supplemental Security Income (SSI) and Medicaid. To avoid disqualification from these benefits after receiving proceeds from a settlement, the money in a special needs trust is not given directly to the disabled person. Rather, the trust pays for non-covered services or equipment such as the cost of medical service providers, transportation, insurance, cable and/or cell phone bills, and other needs.
Simply put, the trustee of a special needs trust manages and oversees the trust for the beneficiary. Individuals and families setting up a special needs trust have several options for establishing a trustee. Most families benefit greatly from selecting an independent professional trustee and a wealth manager over a bank that will lump the trust’s functions all together.
Pooled Special Needs Trust
Pooled trusts are established and operated by nonprofit organizations that have pooled together the resources of multiple families for investment purposes. Unlike a typical special needs trust, for which the individual or family decides on the trustee, the nonprofit will select a trustee to administer the funds in the account. Pooled trusts must maintain individual accounts for each beneficiary, but they can pool those resources together for investment and management.
A first-party trust benefits individuals with special needs who have or expect to receive assets that would disqualify them from eligibility for needs-based benefits. A first-party trust requires that the assets belong to the trust’s beneficiary, such as an injury settlement or inheritance. The remainder of a first-person trust typically reimburses the government for what it has paid. In other words, upon death, Medicaid and other government groups would first be paid back from the trust assets before they go to a beneficiary.
A third-party trust is established with money from a donor, such as a disabled person’s parent or guardian. Individuals who set up a third-party trust have more control over the balance than they would if they had established a first-person trust. Unlike a first-party trust, the government is not entitled to reimbursement for Medicaid payments made on behalf of the beneficiary upon his or her death, because the funds in the trust belonged to someone else.
For more information, check out our short guide to special needs trusts, which explains the decisions beneficiaries and/or their families will need to make as they establish their trust. If you are considering setting up a trust for yourself or a loved one, the settlement planning experts at Milestone Consulting can help. Call us to get started on the right foot.
About John Bair
John Bair has guided thousands of plaintiffs through the settlement process as co-founder of Milestone Consulting, LLC, a broad-based settlement planning and management firm. Milestone’s approach is comprehensive and future-focused. John’s team has guided thousands of clients by taking the time to understand the complexities of each case. They assess the best outcome and find the path that enables each client to manage their many needs. Read more about Milestone Consulting at http://milestoneseventh.com/.
A West Point graduate where he served as captain and military aviator, John Bair continues his commitment to our country through his efforts within the settlement planning industry. He has represented families of victims lost in the Flight 3407 crash, offered pro bono services to the families of 9/11 victims and drafted the first consumer protection bill for plaintiffs (H.R. 3699).