There are several different types of trusts that can be used to enhance the quality of life for a trust beneficiary with special needs. These trusts generally supplement benefits that the beneficiary receives through public assistance programs, such as Supplemental Security Income (SSI).
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Disability Trust
A disability trust is created for a trust beneficiary under the age of 65 who is disabled under Social Security's criteria. The disability trust is funded with the beneficiary's own assets. Some common types of assets that are used to fund a disability trust are proceeds from a personal injury settlement and an inheritance. Assets that are held in a properly created disability trust are exempt and will not affect the beneficiary's ability to receive Medicaid and SSI. Federal and state law require the disability trust to be established by the beneficiary's parent, grandparent, or legal guardian, or by a court.
A disability trust must contain certain provisions for it to be exempt for Medicaid and SSI. Most notably, it must contain a provision to reimburse the state medical assistance program up to the amount of benefits paid for the beneficiary during the beneficiary’s lifetime. Repayment must be made under either of the following circumstances: (1) the beneficiary no longer r
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Pooled Trust
A pooled trust is similar to a disability trust, in that it is funded with the beneficiary's own assets and that it requires the trust beneficiary to be disabled under Social Security's criteria. The pooled trust is most commonly used for Medicaid recipients who are over the age of 65, but it can also be used by younger individuals. The trust is established by the individual, a parent, grandparent, or legal guardian, or by the court.
The pooled trust differs from the disability trust in that it is established for many disabled individuals, instead of just one individual. Each beneficiary has a separate account. The accounts are pooled for investment and management purposes. Also, the trustee of a pooled trust must be a non-profit organization, approved by the Internal Revenue Service.
Similar to the disability trust, funds remaining in the individual's account at his death must be used to reimburse the state Medicaid agency up to the amount of medical assistance provided on
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Third Party Discretionary Trust
A third party discretionary trust (TPDT) is different from a disability trust and a pooled trust because it is funded with assets that do not belong to the trust beneficiary. A TPDT is commonly established by a relative of the trust beneficiary, such as a parent or grandparent, for the purpose of gifting money or property that can be used for the benefit of the beneficiary, while allowing the beneficiary to remain eligible for SSI and Medicaid.
Another difference is that a TPDT does not contain a payback provision to reimburse the state Medicaid agency for benefits provided on behalf of the beneficiary. Also, there is no requirement that the beneficiary be disabled under Social Security’s criteria. Finally, there are no restrictions on the beneficiary’s age.
One advantage to establishing a TPDT is that it can receive gifts of money and property from many different sources. For example, a TPDT established by the beneficiary’s parent can receive gifts of money or property, no
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Testamentary Special Needs Trust
A testamentary special needs trust (TSNT) is similar to a TPDT in that it can be created by anyone under their will to hold property to be used for the benefit of the trust beneficiary upon the death of the person who created the trust.
The disadvantage to the TSNT is that it is not funded until the person who created it dies, and it can only hold assets belonging to the person who created the trust.
This trust is generally used by parents of a special needs child who want to leave their child property in a manner that will not affect the child’s eligibility for SSI and Medicaid.
A TSNT can also be used by the spouse of a disabled person who receives certain types of Medicaid benefits. However, in the case of spouses, there are limitations on the amount of the spouse’s assets that can be used to fund the trust.
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Income Trust
An income trust is necessary for an individual who requires long-term care and whose income exceeds 300% of the SSI limit. For 2007, the 300% limit is $1,869. Each month, the individual’s income is deposited into the income trust. The location where the individual receives long-term care services, such as at home, in assisted living, or in a skilled nursing facility, determines how his income is used each month.
For example, if the individual receives home and community based services (HCBS) at home, he may be able to keep $1,869 of his income each month to use for his living expenses. However, if the individual receives HCBS in an assisted living facility, or receives skilled nursing care in a nursing facility, then most of his income will be paid to the facility each month as his patient payment. He will be allowed to keep a small amount, usually less than $100, each month for his personal needs.
There are also some allowances for the use of all or part of the indivi
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