According to the Social Security Administration and the Department of Education, 15 to 20% of the population of the United States suffers from some form of disability. Disabilities can range from developmental (cerebral palsy, autism, etc.), acquired (head trauma, etc.), organic (Parkinson’s, Alzheimer’s, etc) and mental illness.
Individuals with disabilities have special needs and may be eligible for a wide variety of public programs such as Supplemental Security Income and Medicaid. However, strict financial guidelines can make eligibility for these programs difficult. To protect an individual’s assets while preserving his or her financial eligibility for public programs, a special needs trust is often established. There are four types of special needs trusts which accomplish this goal:
- Settlement / Litigation Special Needs Trust – These trusts are established with amounts received from a personal injury action. Individuals eligible for this type of trust must be under age 65. Careful language must be included in the trust documents to allow an individual to take advantage of federal and state benefits.
- Pooled Special Needs Trust – This type of trust is used to allow disabled individuals over the age of 65 to preserve their eligibility for Supplemental Security Income and Medicaid. The trust is managed through a nonprofit organization set up in each state.
- Third-Party Special Needs Trust – These trusts are used in situations involving contributions from unrelated third parties. Administration of these trusts is similar to a pooled special needs trust, except no age restrictions apply.
- Family Special Needs Trust – This type of trust is commonly used in connection with traditional estate planning for a family with a disabled individual. The trust is designed to allow family members to contribute assets to the disabled individual. The assets may be contributed during the life of the donor, or at death through his or her will. There are no age restrictions for this type of trust.
An individual’s state of residence may influence the operation and effectiveness of some of these trusts.
— Walter Reed