Why You should Include a Special Needs Trust

Special Needs Trusts

By Patricia Louise Nelson of Central Oregon

Nearly all of the revocable living trusts that I draft include an article that provides for a Special Needs Trust to take the gift of any beneficiary who qualifies or may qualify for needs-based public assistance.  From time to time, a client will ask “Can we get rid of this Special Needs Trust provision? It is several pages. I’d like my trust to be shorter and simpler.”  My answer is, “Yes, but I strongly recommend against it.”

Why? A Special Needs Trust is designed to allow a person to inherit assets while still qualifying for needs-based public assistance, like Social Security Disability (based on need, not based on what the person paid into the system) or Medicaid.  Without a Special Needs Trust, the inheritance would need to be paid down to below $2,000 for the person to continue to qualify.  Under recent law, the person who inherited funds while qualifying for needs-based public assistance, can set up their own Special Needs Trust. This sort of “first person” Special Needs Trust is a pay-back trust, meaning that upon the death of the beneficiary, any remaining trust assets must be paid back to the state to reimburse the state for all funds expended for the beneficiary.

If, however, another person sets up a Special Needs Trust for someone other than him- or herself, the trust specifies who is to receive any remaining assets when the beneficiary dies. The state gets nothing.

But why include a Special Needs Trust when no one I intend to benefit qualifies for needs-based public assistance? Because the need for needs-based public assistance can occur in a heartbeat. An accident, injury, or medical event can leave a person qualified for needs-based public assistance suddenly and without warning.  Why not include a Special Needs Trust in your revocable living trust just in case?