Special Needs Trusts

What is a special needs trust?

A special needs trust (also known as a supplemental needs trust) is a trust which holds the funds of a disabled person and which is written in such a way that the disabled person will continue to be eligible for public assistance programs such as Supplemental Security Income (SSI) and MaineCare (Maine Medicaid).   These programs have strict income and asset limits. (The asset limit is $2000 for SSI and $10,000 for MaineCare).  When a disabled person receives money from a law suit, inheritance or divorce, he or she may suddenly have too much money and may lose public assistance.  The loss of medical coverage can be especially serious for a disabled person, who then may quickly deplete the new found money on expensive medical care.

Under the special needs trust, the disabled person’s funds are managed by someone else, called a “trustee.”The trustee rarely, if ever, distribute money directly to the disabled person but instead pays directly for things the disabled person needs.  The primary purpose of a special needs trust is to pay for “special needs” items, other than food and shelter.  “Special needs” items include:  dental care, holistic health care not covered by MaineCare, supplemental nursing care, adaptive equipment, transportation, tuition, books, entertainment, periodic vacations, clothes, personal care.   (These are just a few examples.)

Who should consider a special needs trust?

People who may need a special needs trust:

  • The person with a disability who is going to receive a significant sum of money:  for example, from a law suit, inheritance or divorce. (See “self-settled special needs trust, below.)
  • The parent of a disabled child who wants to be able to leave that child money or property without causing that child to lose public assistance. (See “third party special needs trust,” below.)
  • The person whose spouse is in a nursing home or other long term care facility, who wants to provide in a will for that spouse without losing MaineCare eligibility. (See “third party special needs trust,” below.)

What is a “third party” special needs trust?

A third party special needs trust is for the client who wants to provide in his or her will for a disabled child or other relative.  The client’s goal is to ensure that the disabled child or relative continues to be eligible for SSI, MaineCare and other public assistance programs while having funds available on the side to meet his or her special needs.   The client has a Will which appoints a trustee to handle the disabled child’s or relative’s inheritance.  Typically, the trust will say that if anything remains in the trust when the disabled child or relative dies, the balance will then be distributed to certain other family members.   (A third party special needs trust is not required to have a “pay-back” provision to reimburse the government.)    

What is a “first party” special needs trust?

A first party special needs trust is for the disabled client on public assistance who receives a sum of money; for example, from a personal injury or medical malpractice action, from an inheritance or from a divorce.  If the client places the new funds in a “first party” special needs trust which meets certain strict requirements, the client will continue to be eligible for SSI, MaineCare and other public assistance programs.   The requirements are:  the person must be disabled according to the standards used by the Social Security Administration; the person must be under age 65; the trust must be irrevocable; it must be established by a parent, grandparent, guardian or court; it must state that any funds remaining in the trust at the disabled person’s death be used to pay back the government for what it spent on the person’s medical care.  Anyone can be named trustee of a special needs trust of this type:  a friend, family member, professional, bank, trust company or non-profit organization.

What is a “pooled” trust?

A pooled trust is a special needs trust administered by a non-profit organization for the benefit of a number of disabled people.   The disabled person’s funds are placed in a “sub-account” with the organization.   The organization acts as trustee for the disabled person, drawing on the person’s sub-account to make direct payments to providers for the person’s special needs.  In Maine, there are two pooled trusts:  the Maine Pooled Disability Trust and the Maine Trust for People with Disabilities.    Under SSI and MaineCare rules, if a person age 65 or older wants to fund a special needs trust, he or she must use the pooled trust.

Alternatives to using a special needs trust

There are also other ways to remain eligible for public assistance after receiving a sum of money, other than through a special needs trust.   If the amount of money to be received is modest, the disabled client may be able to retain benefits by “spending” down within the month of receipt on assets such as a car or home, which are “exempt” and will not cause the person to become ineligible for public assistance.

What does Levey, Wagley & Putman do for the client who needs a special needs trust?

  • We meet with the client to learn about the client’s personal and financial situation.  If there is another attorney involved, such as a personal injury, medical malpractice or divorce attorney, we consult and collaborate with that attorney.
  • We develop a plan which will enable the client or the client’s disabled relative to keep SSI, MaineCare and other benefits while still having funds available to meet special needs.  This might include the establishment of a special needs trust, the purchase of exempt assets, or a combination of these approaches.
  • We obtain approval of the trust by the Social Security Administration and MaineCare offices, where required.
  • We get court approval of the trust, when necessary.
  • We assist in the transfer of assets to the trust, communicating with financial institutions as necessary.
  • We assist with follow-up reporting to government agencies, once the trust is funded.
  • We may also act as advisor to the trustee, providing ongoing advice as to how to carry out his or her duties in accordance with the law.

Attorney Sally M. Wagley has substantial expertise in the establishment of special needs trusts and is a frequent presenter on this subject at seminars for attorneys and other professionals.

For more information on her services, fees or to schedule an appointment, please contact us.

The information provided in this website is for educational purposes only. It describes the law in effect at the time the materials were written. This information should not be construed as rendering legal advice or offering an answer to a specific legal problem.



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