Government benefits, such as SSI and Medicaid, can be protected for children with disabilities that are receiving money from legal settlements, inheritance, or gifts.
Attorneys, parents, and guardians need to be careful to create the correct type of trust. The special needs trust will be either a first-party trust or a third-party trust. The type of trust used depends on the source of the money and whether that money has legally been attributed to the child.
AFT does not provide legal advice. You should consult with an attorney that is knowledgeable about special needs trusts. The following is provided only for general information purposes.
If a child with a disability receives a legal settlement or judgment from a lawsuit, the proceeds should cause the child to lose any SSI or Medicaid benefits. Creating a special needs trust with AFT can prevent the child from losing benefits. The trust proceeds can be used over the child’s lifetime to supplement his or her needs to improve the child’s life. However, because the proceeds are considered to be the child’s money, this type of trust requires the Medicaid pay-back provision at the child’s death.
If a parent, grandparent, aunt, uncle, sibling, or friend wishes to give a child with a disability money or leave the child an inheritance, a third-party special needs trust should be created. The person creating the trust can leave directions in his or her Last Will and Testament of Living Trust to create a special needs trust; or, the person can create a stand-alone trust. The trust proceeds can be used over the child’s lifetime to supplement his or her needs to improve the child’s life. However, at the child’s death, any remaining funds in the trust can be distributed to family members or charities as the creator of the trust designated.
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