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Special Needs Trusts

What is a "Special Needs Trust"?

Do I need a Special Needs Trust?

Who should be in charge of the Supplemental Needs Trust?

Can a Special Needs Trust buy a house?

Can a Special Needs Trust buy an automobile or van?

Can a Special Needs Trust pay for vacations?

Can a Special Needs Trust distribute cash to the beneficiary?

How are Special Needs Trusts taxed?

Can the disabled person serve as trustee?





Q: What is a "Special Needs Trust"?

A Special Needs Trust is a special kind of trust which holds title to property for the benefit of a child or adult who has a disability. The Special Needs Trust can be used to supplement benefits received from various governmental assistance programs including SSI and Medicaid. A trust can hold cash, personal property, or real property, or can be the beneficiary of life insurance proceeds.


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Q: Do I need a Special Needs Trust?

A Supplemental Needs Trust is usually necessary only if the person is receiving or expects to need Medicaid, SSI or other means-tested government benefits. Even if a disabled person is not currently receiving benefits, a trust should be considered if there is a possibility that the person may received means-tested government benefits in the future.


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Q: Who should be in charge of the Supplemental Needs Trust?

The combination of a family member and a professional trustee is often the good arrangement. The professional trustee must be sensitive to the needs of the beneficiary and be knowledgeable about governmental benefits.


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Q: Can a Special Needs Trust buy a house?

Yes. A Special Needs Trust can buy a house, and there are often good reasons to do so. However, there are some strict rules under SSI law and under Medicaid regulations that must be considered before making that decision. If the trust is going to buy a house, an experienced Elder Law attorney familiar with governmental benefits should be consulted.


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Q: Can a Special Needs Trust buy an automobile or van?

Yes. A Special Needs Trust can buy an automobile or a van, but insurance is often difficult to arrange. It is usually better for the trust to lease the motor vehicle.


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Q: Can a Special Needs Trust pay for vacations?

Yes. A Special Needs Trust can pay for vacations.


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Q: Can a Special Needs Trust distribute cash to the beneficiary?

Any cash distributed to a beneficiary by a Special Needs Trust will reduce the SSI payment dollar for dollar. If the SSI payment is completely eliminated, Medicaid may be lost. It is not a good practice for a trustee of a Special Needs Trust to distribute cash.


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Q: How are Special Needs Trusts taxed?

There are income, gift, and estate tax considerations in establishing and administering a Special Needs Trust. A gift to a Third party created Special Needs trust is a taxable gift for gift, estate, and GST tax purposes. The trust is taxed as a complex trust for income tax purposes. The funding of a self created Special Needs trust is not a taxable gift and the trust is taxed for income tax purposes as a grantor trust (i.e. the income is taxed to the disabled person).


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Q: Can the disabled person serve as trustee?

No. The whole premise of a Special Needs Trust is that the beneficiary shall not be considered to have access to the principal or the income of the trust. The assets of the trust are for the benefit of the person with the disability, however, the disabled person has no power or authority to direct the payment of the trust assets.


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The Law Office of Martin Hersh, Esq. assists clients with Elder Law & Estate Planning needs in Liberty, Middletown, Newburgh, Goshen, Kingston, and Wurtsboro, and just about every town or village within Sullivan County, Orange County and Ulster Counties in New York State.

The material presented on this site is included with the understanding and agreement that the Law Office of Martin Hersh is not engaged in rendering legal or other professional services by posting said material. The services of a competent professional should be sought if legal or other specific expert assistance is required.



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