A Guide to Special Needs Trusts

Not every estate plan needs a special needs trust within it. But if your loved one depends on money from the government for their care and support, special needs trusts may be essential to protecting them after you are gone.

What is a Special Needs Trust in Florida?

A special needs trust is a specific form of trust created as part of the estate plan of a guardian, caregiver, or loved one of a person with special needs to protect their ability to inherit assets without threatening that person’s financial eligibility for specific government benefits. It is useful for parents of adults with developmental disabilities, family members with special needs, and caregivers of elderly relatives.

What is the Benefit of a Special Needs Trust

Like many other trusts, a special needs trust sets money aside into a separate legal entity for the benefit of the named beneficiary – the person with special needs. The money and assets in that trust are managed by the trustee. Because the trust is a separate legal entity, the money in those accounts shields those assets from being counted toward your loved one’s “means” for determining their ability to support themselves without government assistance like Social Security Insurance and Medicaid.

Medicaid pays for most of the beneficiary’s basic needs, including:

• Mortgage or rent payments
• Food
• Utilities
• Medical expenses

However, other costs are not covered. This includes:

• Personal care items
• Clothing, laundry, and dry cleaning
• Electronic equipment including TVs and computers
• Hobby equipment and musical instruments
• Housekeeping and cooking assistance
• Travel to visit loved ones
• Supplemental medical insurance
• Medical services not covered by Medicaid

This is where the trust comes in. The income from investing in the trust’s assets, and even its principal funds, can be used to pay the beneficiary’s living expenses not covered by Medicaid or other government programs.

Special Needs Trust Rules

Many of the rules around special needs trusts are set by the state and federal government agencies that run the benefits programs. That means that trust management is especially complicated, and trustees need to follow those rules especially closely.

• The trust assets cannot be used to pay for expenses covered by Medicaid benefits
• The trustee must properly pay taxes on trust income, even if not distributed to the beneficiary
• The trustee must not administer the trust in a way that adversely affects the beneficiary’s eligibility for benefits.

Because of this, these trusts are generally managed by professional trustees, rather than family members.

Types of Special Needs Trust

There are two types of special needs trusts in Florida:

Third-Party Special Needs Trusts

Third-party special needs trusts are set up by someone other than the beneficiary (often as part of a parent or guardian’s revocable living trust). Under Florida law, a special needs trust agreement cannot authorize the disabled person to demand payment from either the income or principal from the trust. The trustee must retain discretion to distribute the assets for the beneficiary’s benefit. In addition, under federal law, a special needs trust for the benefit of a surviving spouse can only be created by a Will, not a revocable living trust.

Self-Settled Special Needs Trusts

A “self-settled” special needs trust is established by the beneficiary themselves. It allows the person to segregate newly received assets from Medicaid eligibility assets. It is most often used for large one-time payments, like insurance settlements, divorce property distributions, or inheritances. In many ways it is similar to a third-party trust, but there are three main differences:

• The beneficiary must be below the age of 65
• The trust must be irrevocable (it may not be amended or undone)
• The trust agreement must include a payback provision sending all money remaining in the trust at the disabled person’s death.

Some self-settled special needs trusts are combined into “pooled trusts.” These trusts place each contributor’s funds into a separate sub-account, which is managed collectively by a non-profit, professional trustee. When the disabled person dies the remaining balance may either be paid back to Medicaid or passed forward to other members of the pooled trust.

Get Help From a Special Needs Trusts Attorney

There are many considerations that go into planning and executing special needs trust, including asset planning and alternative investment and insurance strategies. The trust agreement itself is complicated and requires certain specific language to protect the beneficiary’s access to government funds. If you think your beneficiary may need a special needs trust, you should talk to an experienced estate planning attorney who can help you consider all your options and find the best one to protect your family’s interests.

At Harrison Estate Law, we help our clients identify the best estate planning tools to meet their goals, including whether they need to establish a special needs trust. We are happy to help you with setting up a new estate plan or to review, update, and fund an existing trust. Please contact us online or via email or call 352-306-2374 to schedule a free consultation. If you don’t live close to Gainesville we are happy to set up a phone or Zoom call.