If you or someone in your care is about to receive a settlement, you may be concerned about how the influx of income will impact your eligibility for government benefits. Thankfully, there are certain settlement planning strategies you can use to ensure these benefits continue once the settlement money arrives. A special needs trust, also called a supplemental needs trust, is created to pay for the goods and services that means-tested government benefits do not cover. If establishing a trust is the right option for your situation, it’s important to understand how the money is used and distributed.
A special needs trust acts as a financial supplement using funds from a settlement or other lump sum of money. However, the money in this type of trust is not given directly to the beneficiary. To prevent the money from being counted as income, which could disqualify the person from government benefits like Medicare and Supplemental Security Income (SSI), funds are taken directly from the trust to pay for “noncountable resources” (here’s an example for SSI).
The beneficiary and trustee of a special needs trust
The trust is set up to include different roles. The person for whom the trust is established – often an individual who suffered a personal injury – is the beneficiary. The other main role is the trustee. This is the party who manages the trust and controls its distribution of resources. The trustee is assigned during the creation of the trust and can be a family member, friend, or professional. It is normal for there to be more than one trustee, and sometimes when the beneficiary is a child, the parents serve as the trustee. However, the benefit of having a professional serve as the trustee is impartiality.
Paying for goods and services
The trust pays for the goods, services, or equipment needed by the beneficiary that are not paid for by their government benefits. This can include things like a companion, clothes, cell phone, transportation, insurance, specialty equipment, and more. The trustee works in very close contact with the beneficiary and/or their caregiver to manage the trust and its financial distributions to pay for these things. The main takeaway regarding distribution of special needs trust funds is this: The beneficiary never sees the money directly, but the money is used to pay for their needs.
Since every trust is slightly different, the trustee is trained to understand exactly how the trust is managed. This means the beneficiary and/or their caregiver do not have to shoulder the responsibility of understanding how the trust is distributed. The rules governing special needs trusts can feel complicated. If you have questions about a special needs trust, call us today at 716-888-1833 to talk with one of our experts.