If you or your family plan to leave an inheritance or make substantial gifts to a child with special needs, you should strongly consider creating a third-party Special Needs Trust to protect the child’s eligibility for public benefits programs such as Supplemental Security Income (SSI) and Medicaid. SSI and Medicaid are means tested government programs, which have strict limits on the amount of money and other resources someone receiving benefits under the programs can own. These resource limits depend on a recipient’s income and the specific government program but can be as low as several thousand dollars. Receiving a substantial inheritance or gift could result in a child losing eligibility for SSI and Medicaid, forcing them to spend down their assets before they can regain eligibility. Having a third-party Special Needs Trust in place can prevent the loss of critical government benefits and still provide for your child’s supplemental needs because it will not be treated as a “countable” resource.
There are several key benefits to using a third-party Special Needs Trust. The biggest advantage is that after the person with special needs passes away, a third-party Special Needs Trust is not required to pay Medicaid back for money Medicaid spent on benefits for that person. What this means is that any money left in the third-party Special Needs Trust at that point can be distributed to other people that you name in the trust document. The other main advantages are that third-party Special Needs Trusts are more flexible and have fewer requirements to satisfy than other types of Special Needs Trusts.