A special needs trust holds assets, and possibly income, for the beneficiary’s quality of life expenses. The trust can be established by the beneficiary or by a third party, such as a relative. A third party trust can help to increase a beneficiary’s quality of life without disqualifying the beneficiary for Medicaid. The income from a special needs trust can be used for supplemental needs that include costs of hobbies, vacation trips, recreational activities and socialization programs, as well as augmenting training in vocational and independent living skills.
If the beneficiary is under the age of 65, the beneficiary can establish the special needs trust with their own funds and assets. If the beneficiary is 65 or older, the beneficiary cannot use their own assets and funds to establish the trust.
Special needs trusts are governed by strict rules that require careful planning and drafting by an attorney.
Family and friends can set up a special needs trust for loved ones receiving Medicaid. These trusts can be set up during the donor’s lifetime or at the donor’s death.
The beneficiary of a special needs trust cannot also be the trustee of the trust. A trusted individual or a professional trustee will need to be appointed as trustee. The trustee has a fiduciary duty to the beneficiary to manage the trust assets in a prudent manner for the benefit of the beneficiary. A common solution to the trustee liability problem is to have the trust administered and managed by a non-profit pooled trust.