If you are the parents of an adult with special needs, you probably have some concerns about providing for your child after you are gone. Parents want to ensure that their adult children with special needs can live fulfilling lives and have all of their needs met. One way that aging parents with adult children with special needs can provide for them is through a special needs trust.
A special needs trust can pay for a variety of expenses encountered by a disabled individual. These trusts can pay for educational costs, medical devices, medical treatments, and other costs not covered by Medicaid. Special needs trusts can also cover entertainment expenses and improvements to your child’s home. In Kentucky, there are three commonly used types of special needs trusts.
A First-Party Trust
In a first-party trust, you will fund the trust with the assets of the adult with special needs, who is also the beneficiary of the trust. Under Kentucky regulations, adults with disabilities who owned more than $2,000 in assets are typically not eligible for Medicaid coverage. This policy excludes many deserving adults with disabilities from Medicaid. Qualifying for Medicaid is often essential for adults with disabilities because Medicaid provides medical coverage and other essential benefits.
By creating the first-party trust, you will allow your child with special needs to qualify for Medicaid. Your child will not have to declare his or her assets owned by the trust when it comes to qualifying for Medicaid. Thus, they can still be eligible for Medicaid even though they have more than $2,000 worth of assets in their first-party trust.
Should your child need to dissolve the special needs trust, the assets remaining in the trust will be used to repay Medicaid up to the full amount that Medicaid has paid on behalf of your adult child. It is wise to structure the first-party trust so that it lasts the lifetime of your adult child. This will ensure that your adult child is taken care of throughout his or her entire life.
A Third-Party Trust
The assets of family members fund third-party trusts. For example, when an adult’s parents have significant assets, they can use those assets to fund third-party trust. The goal of a Third-Party Trust is to provide living expenses for your loved one with special needs while still allowing them to qualify for essential Medicaid coverage. Both first and third-party trusts provide the adult beneficiary with monthly cash payments so they can live a securely funded life without losing their access to important government services.
Keep in mind that anyone can contribute to the trust with a third-party trust, not just the parents. Family members and friends can contribute money by transferring the money into the trust. As a parent, you can rest assured that the assets you’ve contributed to the trust are protected. Since the trust funds never actually belong to the beneficiary, instead, they are owned by the trust; there is no obligation to reimburse Medicaid for the funds they have spent on your adult child with special needs.
A Pooled Special Needs Trust
A pooled special needs trust is similar to other types of special needs trusts; however, these trusts own the assets from many different beneficiaries who have special needs. Pooled special needs trusts are typically created and administered by non-profit organizations focused on helping adults with disabilities. Those who manage a pooled trust are typically very knowledgeable about the rules regarding income and expenses and the eligibility requirements for government programs such as Medicaid and SSI. Often, those who manage these types of special needs trusts have their own experience with family members or loved ones with disabilities.
One of the benefits with a pooled special needs trust is that many different people can benefit from the management team of trust. Every adult beneficiary with special needs will have their own designated, separate account. However, the account assets are pooled together to make it easy to invest and manage the funds. In many cases, a professional management team of Trustees will invest the trust funds to grow the total amount of assets in the trust. In other words, the trustee may work with an investment company to invest strategically and grow the assets in the trust, benefiting all of the beneficiaries.
Many parents wonder how each beneficiary will withdraw funds when all of the assets are pulled together. An individual beneficiary can withdraw funds in proportion to their share of the total pooled assets. These types of special needs trusts are set up using the beneficiary’s own money. Therefore, the trust must reimburse Medicaid up to the amount the organization has paid on behalf of the special needs adult. Overall, these types of trust can be an excellent way to ensure that the assets of the disabled adult are protected, and that nursing home and other living expenses do not deplete the personal funds of the adult with special needs.
Contact an Experienced Kentucky Special Needs Lawyer Today
Setting up a special needs trust can often seem overwhelming for parents of adults with special needs. At CommonWealth Elder Law, we have guided many families through the process of setting up a special needs trust. If you care for an individual with a special need, creating a special needs trust can give you significant peace of mind.
Even though you may not be able to care for your loved one forever, you will know that they have assets that are protected by the trust that will help them live a quality life after you are gone. You will also be able to ensure that they qualify for Medicaid. Contact us today to schedule your initial consultation.