Using a Special Needs Trust for a Disabled Loved One

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You may have heard the term “special needs trust,” but you’ve probably also heard or read a lot of misleading or confusing information about these planning tools as well. This is because the Internet is full of information intended for a broad and generalized audience. Here in South Carolina, the rules are different than in some other states, so it is always best to consult a local Greenville family law attorney who can provide straightforward and relevant information when you need it.

At the Elliott Frazier Law Firm, we aim to make each client feel unique and cared about. If you need help structuring a trust to protect a disabled loved one, look no further.

What Is a Special Needs Trust?

Disabled individuals have special needs. They may require around-the-clock care, expensive medications, or routine therapy in order to live fulfilling and healthy lives. These things don’t come cheap, and sometimes public benefits programs like Medicaid, Medicare, and Social Security are necessary. No one even questions that a seriously disabled person should receive assistance, but what happens when the assistance is in jeopardy? When someone comes into money or a loved one needs to leave an inheritance to a disabled adult or child, it can create a big problem if not handled properly.

A special needs trust (SNT) is a form of trust that is designed to provide for the needs of a disabled person, while maintaining access and eligibility for life-saving and necessary public benefits programs.

Two Types of Special Needs Trusts

There are many unique ways a skilled Greenville family law attorney can craft an SNT to help your loved one, but the two general funding mechanisms are:

  • Self-Settled – A trust is said to be self-settled (or “first-party”) when it is funded with the disabled beneficiary’s own assets. This is useful in scenarios where a disabled person may be receiving money through a personal injury settlement, medical malpractice claim, lottery winnings, or due to some other windfall. If allowed to sit in their bank account, the otherwise indigent individual may lose Social Security, Medicare and Medicaid eligibility, meaning the money will have to be used to pay cash for care until gone.  An SNT is designed to help remove the assets from the individual’s personal ownership and place it into a pooled or managed trust that can only be used for specific types of purchases. There are lots of limitations and exclusions to be aware of when setting up a self-settled SNT.
  • Third-Party Settled – Next, if a loved one is settling their estate, they can establish a trust for the disabled child or adult by putting their own funds into that third-party trust. This way, technically the money never actually becomes an asset of the disabled person. It flows from the grantor (person giving the money) to the trust. The disabled person has no direct access to the money, but it is managed by a trustee who must use it exclusively for permissible expenditures.

Pay Back Provisions

One serious consideration about SNT trusts is that upon the disabled individual’s death, any remaining money in the trust must be paid back to the State of South Carolina in reimbursement for funds paid on the beneficiary’s behalf during life.  

At the Elliott Frazier Law Firm, we frequently guide families in making tough choices to protect their loved ones and preserve wealth. Give us a call if your family is in need of planning and strategic legal counsel.

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