A Special Needs Trust (SNT) is a complex legal tool set up on behalf of a person with special needs or disabilities. The SNT allows a beneficiary with special needs to safely utilize money or property in the trust without jeopardizing the ability to collect needs-based public benefits such as Supplemental Security Income (SSI) and Medicaid.
Loved ones often take great care when setting up a Special Needs Trust to ensure that the disabled individual has enough resources to last for a lifetime. Because of this careful planning, there are times when the beneficiary of a Special Needs Trust passes away before all of the resources within the trust are used up. If this happens, it will be necessary for the trustee to deal with any remaining assets.
Will the Assets Need to Go Back to the Government?
Whether or not remaining assets in a Special Needs Trust must go back to the government to reimburse for Medicaid benefits that were used depends on the type of trust that was created.
”Third-party” Special Needs Trusts are funded with assets that do not belong to the person with special needs. They instead come from parents, grandparents, or other loved ones who contribute or set aside money for their loved one’s future care. If such a trust is created correctly, the funds in the trust will not count as the beneficiary’s assets when applying for benefits such as SSI or Medicaid. As such, when the beneficiary dies, this trust will not need to contain a “payback provision” which requires any remaining funds to be paid back to the government.
However, sometimes the person with special needs places his or her own money into the Special Needs Trust, (for example money that was received as part of a legal settlement). This situation is called a “first-party” Special Needs Trust (because the assets are contributed by the person with special needs) and will need to contain a payback provision to the government to reimburse for Medicaid benefits that were used.
The differences between these types of trusts, and the obligations to reimburse the government for benefits paid during the life of the Special Needs Trust beneficiary are just a few reasons why it is important to consult with an attorney prior to funding a Special Needs Trust.
Who Inherits Assets that Do Not Need to Be Paid Back to the Government?
Any remaining assets that do not have to be paid back to the government in a Third-Party Special Needs Trust will go to what are called residuary beneficiaries. Residuary beneficiaries can include surviving siblings, caregivers, or even a charitable cause. Generally, the person who creates the Special Needs Trust will name residuary beneficiaries who should inherit any remaining funds following the death of the beneficiary. Keep in mind that the final distribution amount will not be determined until the Trustee pays any liens, taxes, final expenses, outstanding bills owed, and administrative costs.
If you have questions about creating a Special Needs Trust in Tarrant County, Texas, whether a Third-Party Special Needs Trust or a First-Party Special Needs Trust, we invite you to contact our law firm at (817) 752-3307 to schedule an appointment.