Government benefits, such as Supplement Security Income (SSI) and Medicaid, can be protected for children with disabilities who 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.
Alabama Family Trust does not provide legal advice. You should consult with an attorney who 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 Supplemental Security Income (SSI) or Medicaid benefits. Creating a special needs trust with Alabama Family Trust 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 disabled child money or 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 or Living Trust to create a special needs trust or 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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