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Parents and caregivers often worry that leaving money to a loved one with a disability could affect their eligibility for programs like Medicaid or Supplemental Security Income (SSI), which have strict income and asset limits. A special needs trust, also called a supplemental needs trust, allows families to provide financial support without jeopardizing those benefits.
In Massachusetts, both terms refer to the same type of trust, designed to protect eligibility for government benefits while improving the beneficiary’s quality of life. The difference lies mainly in terminology, not in how the trust functions. Understanding how these trusts work can help families plan for long-term stability and peace of mind.
What Is a Special Needs Trust?
A special needs trust is a legal arrangement that allows a person (often called the “grantor”) to set aside funds for a beneficiary with a disability. The key feature is that the funds are owned by the trust, not the beneficiary. Because the beneficiary does not have direct access to or control over the funds, those assets are not counted when determining eligibility for government programs.
The trust is managed by a trustee, who uses the funds to pay for goods and services that enhance the beneficiary’s quality of life without duplicating what public assistance provides. This structure ensures that your loved one receives both public benefits and additional financial support from the trust.
What Can a Special Needs Trust Pay For?
Funds from a special needs trust can be used for a wide range of supplemental needs, including anything that improves the beneficiary’s comfort, independence, and well-being. Examples include:
- Clothing, furniture, and personal items
- Medical or dental care not covered by insurance
- Education, job training, and therapy
- Vacations, hobbies, and entertainment
- Assistive technology or home modifications
- Personal care attendants and transportation
The trustee makes payments directly to vendors or service providers, ensuring the beneficiary benefits without receiving direct income that might affect eligibility for SSI or Medicaid.
Types of Special Needs Trusts
Special needs trusts typically fall into two main categories, depending on whose assets fund the trust:
1. First-Party Special Needs Trust
A first-party trust is created using the beneficiary’s own money, perhaps from a personal injury settlement, inheritance, or savings.
- It must be established before the beneficiary turns 65.
- After the beneficiary’s death, any remaining funds may need to reimburse Medicaid for benefits paid during their lifetime.
2. Third-Party Special Needs Trust
A third-party trust is funded with assets belonging to someone other than the beneficiary, such as a parent, grandparent, or other relative.
- It can be created during the grantor’s lifetime or through a last will and testament or living trust.
- Unlike first-party trusts, these funds are not subject to Medicaid payback after the beneficiary’s death.
Both trust types are valuable tools for ensuring long-term care and financial security while preserving public benefits.
What Is a Pooled Trust?
If it’s difficult to find an individual trustee to manage the funds, another option is a pooled trust. A pooled trust is established and administered by a nonprofit organization that manages funds for multiple beneficiaries in one large account. Each beneficiary has their own sub-account, and the nonprofit handles investment, recordkeeping, and disbursement decisions.
This arrangement can be ideal when:
- The trust assets are modest in size.
- There’s no family member able or willing to act as trustee.
- Professional oversight and compliance are priorities.
- Last minute planning for the need of Long-Term-Care government benefits.
Pooled trusts follow the same rules as individual special needs trusts, ensuring that the beneficiary’s public benefits remain protected.
Creating a Trust for a Loved One with Disabilities
Establishing a special needs trust is an important step in caring for a family member with disabilities. When done correctly, it ensures your loved one has access to the resources they need without losing eligibility for critical government programs. Key considerations include:
- Selecting a reliable and informed trustee.
- Defining which expenses the trust will cover.
- Coordinating with your overall estate plan.
Because the rules governing these trusts are complex and vary by program, professional legal guidance is vital to avoid mistakes that could affect eligibility.
Protecting Your Loved One’s Future
While planning for a loved one’s future can be complex, a special needs trust ensures lasting financial protection. At The Law Offices of Patricia Bloom-McDonald, we help Massachusetts families create thoughtful, legally sound trusts that protect eligibility for government benefits while improving quality of life. We can help you design, fund, and manage a trust that supports your loved one’s future.Contact our office today to schedule a consultation and start planning for lasting protection and peace of mind.