What is the Best Trust for Special Needs Planning?

Caring for a child with a disability creates challenges beyond our lifetime and often takes resources beyond what federal safety net programs can offer in order for our loved one to live the most comfortable and dignified life possible. While rules governing these federal programs place certain income restrictions on disabled persons to qualify, there are sanctioned trusts allowed specifically for special needs planning that allow for first party and third party benefits to supplement federal assistance.


In 2010, Congress passed the Achieving a Better Life Experience (ABLE) Act allowing beneficiaries to have up to $100,000 in a 529 special needs trust and retain Social Security Insurance benefits. Beneficiaries can also retain Medicaid coverage so long as the trust does not exceed the amount for a 529 college savings plan. The ABLE Act allows these trusts to be created so long as the beneficiary’s disability is established prior to the age of 26-years old.


Disabled persons can also create and fund their own first party special needs trusts through a (d)(4)(C). Funds for first party special needs trusts often come from sources such as a personal injury settlement, workers’ compensation award, or an inheritance left directly to the beneficiary. An amount equal to the annual federal gift tax exclusion (currently $15,000) can be deposited annually in the account while still maintaining the beneficiary’s eligibility for Medicaid and Supplemental Security Income


In situations where the disabled individual cannot fund a trust himself or herself, a third party pooled special needs trust may be funded by someone other than the beneficiary, typically a family member or friend, and can be coordinated with a grantor’s estate plan. In these situations, it will likely be necessary for a family member to administer the trust and perform other duties in a fiduciary capacity to help the beneficiary live a better life.


Administrators of special pooled trusts will need to decide how funds are dispersed, decide how to invest and manage funds, fulfill requirements of governmental agencies, and stay informed of changes to SSI and Medicaid programs. Whether an ABLE account, first party pooled trust, or third party pooled trust is best for the beneficiary depends on the circumstances of the individual and may change as time goes on. For that reason and others, it will be necessary to choose an administrator who is able to handle the responsibility.

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