A special needs trust is a trust designed to provide management of assets for the benefit of an individual with disabilities. A properly-drafted and properly-administered special needs trust is considered an “excluded resource” for public benefits determination, which means the individual with disabilities can have a supplemental source of funds without jeopardizing eligibility for needs-based government programs.
There are two types of special needs trusts
(1) A “first-party” or “self-settled” special needs trust is funded with assets belonging to the disabled beneficiary and has a Medicaid payback upon the death of the beneficiary. Appropriate sources of funds for a self-settled special needs trust may include lawsuit settlements, savings accounts, child support payments, military survivor benefits, SSI back payments and unplanned inheritances or life insurance proceeds.
(2) A “third-party” special needs trust can be funded with assets belonging to a third-party (parent, grandparent or anyone wishing to benefit a person with special needs). This type of trust is often established as part of a special needs estate plan that protects long-term eligibility for government programs and avoids a Medicaid payback. If assets are properly directed to the trustee before the beneficiary has legal ownership of the asset, a third-party special needs trust can receive gifts and inheritance assets such as real estate, checking and savings accounts, investment accounts, distributions from retirement accounts, life insurance proceeds and other personal property.
A master pooled trust is a unique type of special needs trust (first-party or third-party) that combines resources from many individuals to form a “pool” of sub-accounts that are managed collectively by a trustee from a non-profit organization.
An ABLE account is a tax-advantaged savings account for an individual who was disabled before the age of 26. The “Stephen Beck Jr., Achieving a Better Life Experience Act of 2014” allows for contributions up to $15,000 per year (2019 IRS tables) into an account to be used for “qualified disability expenses.” Like a first-party special needs trust, a properly-established and properly-managed ABLE Account may be excluded as a resource for public benefits determination, but has a Medicaid payback upon the death of the beneficiary. Unlike a special needs trust, an ABLE account has no requirement of trustee management.