Finding the Special Needs Trust That’s Right for Your Family
Question: “My husband and I have been researching special needs trust, and we have realized there are multiple types. Would you mind describing the types of special needs trusts that exist and the reasons for each?
Answer: You are correct. Special Needs Trust is a broad term that can comprise various types of trusts. We will briefly explain the three main types:
- D(4)a or Self-Settled Special Needs Trusts
This type of trust is used in situations when the individual with special needs receives money in his/her name, and that money must be removed from the estate (not owned by him/her), so he/she can continue to qualify for government benefit programs. This scenario can occur:
- Due to an incorrectly-designed will or beneficiary designation that lists the individual with special needs directly by name, which means he/she received a lump sum amount of money
- Due to a settlement from a lawsuit where the individual was provided a financial lump sum usually based upon some form of negligence that caused an injury to the individual.
- If the individual with a disability was saving money and his/her savings exceeded the Medicaid Limit. To avoid a Medicaid Spend down, the individual could use one of these types of Special Needs Trusts.
By utilizing this type of Special Needs Trust, the individual can continue to benefit from this money, while still qualifying for government benefits. The drawback to this type of trust is at the end of the individual’s life, any money remaining in the D(4)a trust is subject to a Medicaid payback, which could result in all the money in the trust being seized by Medicaid. However, if your child receives a large sum of money, this is many times the only option.
- D(4)c or Pooled Special Needs Trust
A Pooled Special Needs Trust is typically run by a non-profit organization that will manage the trust and be the trustee. The “pooled” means that the organization pools the assets of all participants (beneficiaries/individuals with disabilities) into one “master trust” with separate “sub-trusts” or “sub-accounts” for each beneficiary. The advantage to this trust is that the pooling feature allows families with lower levels of assets to still have a special needs trust option for their child and have a qualified entity, such as the non-profit, manage and provide for the needs of their loved one.
A Pooled Trust does have similar rules regarding remaining money in an individual’s “sub-trust” or “sub-account” when he/she dies, as the D(4)a trust. For most pooled trusts, when a beneficiary passes away, Medicaid is entitled to be reimbursed for expenses they paid on behalf of the beneficiary, and any remaining money is usually held by the charitable organization (each organization that runs pooled trusts will vary on the amount they hold onto when a beneficiary passes away.)
Another important element to consider when deciding to use a Pooled Trust versus one of the other trust options is the mobility of your child with autism. If your child will be moving to another state, it could be problematic to begin a pooled trust in the state your child currently resides. Pooled Trust can be state-specific, and if the pooled trust you choose is not national (meaning it accepts beneficiaries from all states), then if your child moves, the trust will most likely need to be moved to a new pooled trust in the state he/she resides.
- Third Party Special Needs Trust
This trust cannot be funded with money from the individual with a disability. This type of trust can be funded by anyone other than your child with autism, which means parents, grandparents, siblings, aunts, uncles, etc. When money is placed in this trust, it is not considered your child’s asset which means your child will still qualify for government benefits such as Medicaid and Supplemental Security Income (SSI), but yet the trustee (the person who manages the trust) will use the money from this trust to benefit your child.
The main reason families choose this type of trust is because it has no Medicaid Reimbursement Provision at the end of your child’s life. This means that if money remains in a correctly designed and managed Third Party Special Needs Trust at the end of your child’s life, then the money will be directed to whomever you determined it would go, such as other children or grandchildren or a charity.
When considering the type of trust to choose for your child, you must consider your individual situation and consult with a professional. Please feel free to reach out and ask us questions.
Ryan F. Platt, MBA, ChFC®, ChSNC™ completed his Special Care Planner Certification in 2005 at the American College in Bryn Mawr, PA, in which he received advanced training in estate and tax planning, special needs trusts, government programs, and the emotional dynamics of working with people and families with special needs loved ones. In 2013, he went on to complete the Chartered Special Needs Consultant designation. A pioneer in his field, Ryan is one of only a few planners certified through Massachusetts Mutual Life Insurance Company (MassMutual) and the American College in Special Care Planning in Charlotte. He is the founder of A Special Needs Plan.
101 N. McDowell Street, Suite 120
Charlotte, NC 28204
Ryan F. Platt is a registered representative of and offers securities, investment advisory, and financial planning through MML Investors Services, LLC, member SIPC. A Special Needs Plan is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliated companies. This article is not a recommendation or endorsement of any products.
This article was featured in Issue 72 – Sensory Solutions For Life