Disabled individuals who receive needs-based government benefits run the risk of losing eligibility if they accept a lump sum settlement. Fortunately, a special needs trust (SNT) may help the disabled individual maintain benefit eligibility while protecting their assets.
The trustee of the special needs trust (e.g. a parent/guardian or a corporate trustee) is in charge of managing distributions. Federal and state guidelines mandate which goods and services are eligible for distribution, but as a general rule, the funds must only be used for the benefit of the disabled individual.
Restrictions on SNT Distributions
Local Social Security and Medicaid (or Medi-Cal, in California) offices may treat distributions differently, even within the same state. Medicaid, for instance, may require that the title of a home purchase be held in the name of the trust. Social Security, on the other hand, may allow for the purchase of the home in the disabled individual’s name (although the purchase may affect SSI benefits for the month during which the home is purchased).
Eligible distributions may also be dependent on the manner in which the trust was funded. Trusts that are funded with the assets of the disabled individual, including personal injury settlement proceeds, are generally the most restrictive.
Examples of Eligible Distributions
Here are some examples of goods and services that your local government benefit offices may consider eligible for distribution:
Requirements for Reporting
Detailed accounting must be kept for any distributions made from the SNT, and is often required to be reported to both the Court and state government benefit agencies. The trustee and the beneficiary may face stiff repercussions for failure to maintain and report distributions properly.
Failure to maintain and report proper accounting can be costly for both the trustee and the beneficiary.
Contact our settlement planning team today