A Special Needs Trust is an estate planning tool that protects a disabled person’s assets and still allows that person to qualify for certain public assistance benefits, such as S.S.I. and Medicaid. There are many types of Special Needs Trusts, including Third-Party Special Needs Trusts and Medicaid-Payback Trusts. Each type of Special Needs Trust is intended for a very specific purpose.
Special Needs Trusts are designed to supplement, not replace, the benefits that a beneficiary receives through certain public assistance. Generally, these Trusts cannot be used to pay for food and shelter without potentially jeopardizing the beneficiary’s public assistance. Despite this restriction, Special Needs Trusts can supplement the beneficiary’s quality of life in many other ways. For example, Special Needs Trusts can pay for a beneficiary’s education, travel, a handicap-equipped vehicle, medical treatment and medications not covered by Medicaid, and certain attendant care services not covered by Medicaid. Special Needs Trusts are often distinguished by how they are created and funded.
Disability Trusts (Medicaid-Payback Trust)
A Disability Trust can be created for the sole benefit of a beneficiary who is under the age of 65 and meets the Social Security Administration’s disability criteria. Disability Trusts can only be funded with the beneficiary’s own assets. Personal injury settlements, worker’s compensation settlements, and inheritances are often used to fund Disability Trusts. Federal and state laws require Disability Trusts to be established by the beneficiary or the beneficiary’s parent, grandparent, legal guardian, or a court. Disability Trusts must contain language stating that when the beneficiary passes away, the trustee is required to reimburse Medicaid for all assistance it paid during the beneficiary’s lifetime. If there are any Trust funds remaining after Medicaid is reimbursed, those funds can be paid to the beneficiary’s estate.
Colorado’s Medicaid regulations state that any Disability Trust created for the benefit of a Medicaid beneficiary must be submitted to the Colorado Department of Health Care Policy and Financing for review and approval.
Third-Party Special Needs Trusts
Third-Party Trusts also allow a beneficiary to retain eligibility for certain public assistance benefits including Medicaid and S.S.I. But, Third-Party Trusts differ from Disability Trusts in two important ways. First, a Third-Party Trust can only be funded with assets that do not belong to the beneficiary. Second, a Third-Party Trust does not require any reimbursement to Medicaid when the beneficiary passes away.
This Trust is generally used by relatives of disabled children and adults who want to leave their property in a manner that will not affect that person’s eligibility for certain public assistance benefits like S.S.I. and Medicaid.
You can create a Third-Party Special Needs Trust while you are alive, or you can direct that your Will or Living Trust establish the Third-Party Special Needs Trust when you pass away.