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What is a “Special Needs” Trust?

On Behalf of | Nov 20, 2021 | Estate Planning

Technically, a special needs trust is more formerly known as Medical Assistance Special Needs Trust. In this type of trust, also called a d4A trust, the trustee holds property that benefits another person – the beneficiary – who is an established Medicaid member under 65 years of age and disabled. This type of trust was statutorily created by federal law to care for a beneficiary with special needs.

What are the Special Needs Trust Requirements in Iowa?

According to the Iowa Department of Human Services, Special Needs Trust requirements include:

  • Establishment for the beneficiary by any of the following: the beneficiary, a legal guardian, a parent, a grandparent, or the court
  • Created with the assets of a disabled person who is under 65 years of age
  • The trust must be irrevocable
  • The residual beneficiary of the trust must be the State of Iowa
  • Yearly annual reports must show the monthly and total annual income placed in the trust.
  • Monthly and total annual expenditures must be sent to the Medicaid Trust Program
  • Reimbursement must include all medical assistance provided – not just medical assistance paid during the trust’s term

What are the Different Types of Special Needs Trusts?

There are three types of special needs trusts. With all three of these, the person with special needs is named as the beneficiary. They are:

  • First-Party Trust: With this trust, the beneficiary can maintain their government benefits, including Supplemental Security Income (SSI) and Medicaid. The assets of this trust, along with any income generated by those assets, are used to supplement, rather than duplicate or replace government benefits.
  • Third Party Trust. This trust is funded with the assets of a third party – such as the parents of a child with special needs) – rather than by the beneficiary. The Settlor, the person who established the trust – the third party – can control the disposition of the trust upon the death of the beneficiary because there is no payback to Medicaid. With this type of trust, the beneficiary can maintain government benefits because that person’s own money is not used to create the trust. However, this may have a negative effect on the beneficiary’s SSI.
  • The Pooled Trust. The trustee in this type of trust is a non-profit association.

What are the benefits of special needs trusts?

A special needs trust – or a supplemental trust – can offer peace of mind through knowing that the beneficiary will be taken care of. When assets are set aside specifically for the care of a disabled person, this can enhance that person’s quality of life. A special needs trust also preserves the beneficiary’s eligibility for SSI and Medicaid.

How a Lawyer Could Help

An experienced estate lawyer could help you to properly set up the appropriate type of special needs trust for you or a beneficiary, guiding you through what can be a complicated process. A lawyer can help you understand which is the best type of trust for your situation and can answer any questions you may have, ensuring peace of mind.

Contact Your Estate Attorney Today.

At Telpner Peterson Law Firm, LLP, our Council Bluffs estate planning lawyers have helped our clients to understand and make good decisions about special needs trusts since 1952, and we can help you. Contact us at 712-309-3738 or reach out to us online for a confidential consultation with one of our experienced team members.