who is eligible for a special needs trust

2022-03-09

Who Is Eligible for a Special Needs Trust?

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When someone has a disability, setting up a special needs trust (SNT) will help ensure that they are cared for financially. Assets placed in an SNT offer financial support without affecting the beneficiary’s eligibility for important government assistance program benefits. At Phelps LaClair, we want to help you protect your loved ones’ futures as well as your own with well-crafted trusts. Continue reading to learn who can benefit from a special needs trust, eligibility requirements, and other important information regarding SNTs.

What Is a Special Needs Trust?

Arizona Revised Statute 14-10103 defines a special needs trust as a type of trust created to benefit one or more people with disabilities. It allows them to receive income without that income affecting their eligibility for government benefits. As long as the assets in an SNT are not used for food or shelter, a disabled person can still qualify for Social Security, Supplemental Security Income, Medicaid, or Medicare. The assets in the trust can cover medical bills, caretaker paychecks, transportation costs, and more.  

Who Is Eligible for a Special Needs Trust?

Anyone with a disability as defined by this US Code qualifies for a special needs trust. According to 42 US Code section 1382c, a disabled person is anyone who has a “medically determinable physical or mental impairment” that may last for more than a year or result in their death. However, not everyone with a disability needs a special needs trust. 

People who would best benefit from a special needs trust include:

1. Someone dependent on government assistant programs

If you would like to financially support someone with a disability who relies on government assistance, it’s a good idea to set up a special needs trust. Gifting to a disabled person could cause them to exceed certain income limitations, disqualifying them from receiving government benefits. For example, a disabled person who earns more than $1,350 a month ($2,260 if they’re blind) is not eligible for Social Security Disability Insurance benefits. 

2. Someone unable to manage their own finances

A special needs trust is also a good choice for disabled people who do not qualify for government disability benefits because it still keeps their finances safe. An SNT is irrevocable, so creditors and winners of lawsuits are not entitled to its assets. A special needs trust also protects funds from predatory people who may try to manipulate a disabled person into giving them money. 

3. Someone who may need disability benefits in the future

If someone develops a condition that may disable them later on, it’s best to set up an SNT in advance. Setting up a trust now ensures that your loved one will still be eligible for benefits later on in life. It will even protect their eligibility if they inherit or receive a large sum of money before becoming disabled. 

Who Can Create a Special Needs Trust?

Anyone is able to create a special needs trust for an eligible beneficiary. However, they must establish the trust before the beneficiary turns 65. And, thanks to the “Special Needs Trust Fairness Act,” people with a disability can also create their own SNTs. 

If the SNT uses the beneficiary’s own funds, it is known as a first-party special needs trust. SNTs that use someone else’s funds, like those of a family member, are called third-party special needs trusts. No matter the type of trust, whoever creates it must designate a trustworthy trustee who can responsibly manage and distribute the assets

Set Up a Special Needs Trust Today

If you would like to create a special needs trust for a loved one or for yourself, contact the estate planning team at Phelps LaClair in Arizona. As experts in special needs planning, we’re happy to answer your questions and help you understand who is eligible for a special needs trust. Call 480-892-2488 today to schedule a consultation in Chandler, Mesa, Phoenix, Scottsdale, or Glendale.

Images used under creative commons license – commercial use (3/9/2022). Photo by Nathan Anderson on Unsplash

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