What is a special needs trust?

On Behalf of | May 29, 2020 | Estate Planning |

People with special needs often need help managing their financial matters. Estate planning in Pennsylvania may include a special needs trust to protect their interests.

Generally, a trust is a document where property is held by one person for another person’s benefit. A special needs trust is created to have financial resources available to help a person with a disability under 65 years old. This person receives or may receive medical assistance or supplemental security income in the future.

For MA or SSI eligibility, a person cannot own over $2,000 in assets. But a special needs trust will keep this person eligible for MA or SSI, if the person is about to receive a large amount of money from sources such as a personal injury lawsuit, an inheritance, a gift, life insurance, divorce settlement or a workers’ compensation lump sum settlement.

These funds must be placed in a special needs trust. The trust should be drafted by an attorney and approved by the Social Security office, Department of Human Services and the court.

A responsible person or financial institute must be named as trustee to manage the trust’s assets. Contingent or alternate beneficiaries should be identified in the trust to receive assets if the primary beneficiary dies. The trust will contain restrictions on disbursement.

Generally, this trust cannot pay for food or shelter. Trust assets may pay for items that enhance the quality of life for the beneficiary with the disability. These include home renovations that improve accessibility, specially modified vehicles and other transportation needs, pet care and veterinary expenses, lawn care and snow removal, housecleaning and laundry services.

The three special needs trusts are a common law special needs trust, payback trust and pooled trust. An attorney can provide advise on the trust that provides the most benefits or carries out the wishes of interested parties. A lawyer may also draft a valid document that meets Pennsylvania’s legal requirements.

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