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Special Needs Trusts

Special needs trusts have been authorized by federal law since 1993 and Florida law the last few years. They are planning tools that enable a disabled person to receive the benefits of services and products purchased for them by the trust without losing the government assistance that pays for their long-term care medical needs. The special needs trust is invaluable for persons with chronic, long-term disabilities where the cost of medical care can be exorbitant and they cannot pass medical underwriting requirements to obtain private health insurance.

The goals of most special needs trusts are to utilize the trust assets to improve the disabled person's quality of life and quality of case while maintaining government assistance as the primary tool to finance basic medical services. The trustee of a special needs trust is generally given broad discretion to utilize trust assets to purchase items and services for the beneficiary which are in addition to those provided by public benefits.

There are two basic types of special needs trusts; an inter-vivos trust (effective during life) that contains the assets of the disabled person; and a testamentary trust (effective at the settlor's death), which contains assets of the deceased grantor.

The inter-vivos special needs trust is primarily used where the disabled person has either come into a direct inheritance of settlement proceeds. The criteria for an inter-vivos special needs trust are:
  1. the disabled person must be age 65 or younger,
  2. the beneficiary of the trust must be "disabled" as defined by the Social Security Act, and
  3. the trust must provide that at the disabled beneficiary's death the State will be reimbursed for Medicaid benefits it has paid.
  4. can only be created by the disabled person's parent, grandparent, legal guardian or a Court.
  5. the disabled person may not serve as trustee or co-trustee otherwise the government will view that person as having direct access to the assets and count the assets.
  6. assets cannot be added to this trust after age 65.
The testamentary trust is primarily used where family members wish to include the disabled person in their estate plan and realize that a direct inheritance will render that person ineligible for government assistance. It is not governed by federal or state statute and therefore, has none of the requirements discussed above including no payback requirement. For the reason explained above, the disabled person cannot serve as trustee or co-trustee. Testamentary special needs trust for a spouse must be created with a Last Will & Testament; for all other individuals they may be created with in a revocable trust.

The trustee of a special needs trust has additional responsibilities to being a prudent trustee, honoring the directions of the trust agreement, and following Florida Statutes on trust administration. A special needs trust trustee must be aware of the programs under which the beneficiary receives assistance and understands the basic rules in order to know what types of disbursements will cause a reduction or, loss of public assistance.

William R. Black, PLLC
4250 NE 16th Ave. Oakland Park, FL 33334
Phone (954) 745-7986     Cell (754) 224-9002     Fax (954) 745-7985