Secure a vulnerable loved one’s future with a special needs trust
Creating a special needs trust can be one of the most important steps in ensuring the financial security and well-being of a loved one with disabilities. It empowers you to provide for a loved one without jeopardizing eligibility for essential government benefits like Medicaid and Supplemental Security Income (SSI).
By carefully addressing key considerations, you can craft a trust that supports your loved one’s long-term needs while adhering to trust law.
Types of special needs trusts
In South Carolina, there are three primary types of special needs trusts: first-party, third-party and pooled trusts.
First-party trusts are funded with the beneficiary’s own assets, such as an inheritance or settlement, and must include a Medicaid payback provision. Third-party trusts, funded by someone other than the beneficiary, do not require payback provisions.
In contrast, pooled trusts, managed by nonprofit organizations, combine resources for investment purposes while maintaining individual sub-accounts.
Legal requirements
A special needs trust must comply with federal guidelines under the Omnibus Budget Reconciliation Act of 1993 (OBRA-93) and South Carolina’s trust formation laws.
The trust must be irrevocable, include a spendthrift clause and explicitly state that it supplements government benefits. Proper drafting is crucial to avoid disqualifying the beneficiary from essential programs.
Trustee responsibilities
Selecting a trustee is a critical decision. They manage the trust’s assets and make distributions meant to enhance the beneficiary’s quality of life without affecting government benefit eligibility. Consider appointing a professional trustee or co-trustee for their experience and the oversight they provide.
Funding considerations
Improper funding can jeopardize the trust’s effectiveness. It is critical to see that assets are transferred correctly and the trust is adequately funded to meet the beneficiary’s needs over time. An estate planning representative can help you understand your funding options.