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National Disabilities Month What Are the Different Types of Special Needs Trusts in Virginia

If you are responsible for a family member with special needs, you must consider how you will provide for them after you are gone. Leaving an inheritance isn’t ideal, as it may disqualify them from need-based government benefits like Medicaid and Supplemental Security Income (SSI).

Instead, consider special needs trusts (SNTs). A trust can hold assets for your loved one without affecting their eligibility for public benefits.

Third-Party Special Needs Trusts in Central Virginia

Under this type of trust arrangement, a third party, such as yourself or another family member, provides the trust assets. Often the trust will be part of the funder’s estate plan.

As a beneficiary, your child or family member doesn’t legally own the assets and can’t make spending decisions — a trustee will manage the trust on their behalf. The beneficiary also can’t take out trust assets as cash gifts, as this would make them ineligible for need-based programs.

They can, however, use the SNT as a supplemental needs trust to pay for goods and services not covered by insurance or other benefits, such as education, travel, entertainment, and certain medical expenses.

When your chosen beneficiary dies, the remaining trust funds may go toward repaying the state for Medicaid and other benefits. Alternatively, you can select other family members to take over as beneficiaries.

First-Party Special Needs Trusts (d4A)

First-party SNTs, also known as self-settled or d4A trusts, use your loved one’s assets. Personal injury awards following car crashes or medical malpractice are a common funding source, as these accidents can leave victims with lifelong special needs and disabilities.

Because they use first-party funding, these special needs trusts may disqualify your child or family member for Medicaid and SSI. To preserve their eligibility for public benefits, a first-party SNT must:

  • Exclusively support your child or family member
  • Date from before they turn 65
  • After your loved one’s death, use any remaining assets to repay the state for Medicaid payments

Pooled Special Needs Trusts

A third option to preserve Medicaid and SSI eligibility is for your child or family member to put their assets in a pooled trust.

Nonprofit organizations often create and manage pooled trusts for multiple special needs beneficiaries. To preserve eligibility for public benefits, a pooled trust must meet the following requirements:

  • The trust may pool the accounts of different beneficiaries for management and investment purposes but must maintain separate accounts for each individual.
  • Any remaining assets the trust doesn’t keep after your loved one’s death must pass to the state as Medicaid repayment.
  • Your child or family member must qualify as a disabled person under 42 U.S.C. §1382c(a)(3).

Commonwealth Life & Legacy Counsel: Safeguarding Your Loved Ones’ Future in Central Virginia

With proper planning, special needs trusts can help secure your loved one’s future after you pass away. At Commonwealth Life & Legacy Counsel, we can explain your options and help you design the right solutions for your family. Contact us today to schedule a consultation.