Florida Special Needs Trust

What Is a Special Needs Trust?

A special needs trust, also known as a supplemental needs trust, is a legal arrangement designed to benefit an individual with disabilities by managing assets for their benefit without affecting their eligibility for public assistance programs like Medicaid or Supplemental Security Income (SSI).

It allows funds to be used for expenses that enhance the beneficiary’s quality of life, such as education, recreation, and personal care, beyond what government benefits provide.

The trust is managed by a trustee who disburses payments in a way that does not disqualify the beneficiary from receiving vital public benefits.

To open a special needs trust, you must (1) draft the trust document, (2) appoint a trustee, and (3) transfer assets into the trust while ensuring compliance with state and federal laws to maintain benefit eligibility.

Types of Special Needs Trusts in Florida

1. Self-Settled Special Needs Trusts:
   • Funded with assets owned by the beneficiary, such as an inheritance or a legal settlement.
   • Upon the beneficiary’s death, any remaining funds in the trust must be used to reimburse the state for Medicaid benefits received by the beneficiary.
2. Third-Party Special Needs Trusts:
   • Funded with assets that never belonged to the beneficiary, typically provided by family members through estate planning.
   • Offers more flexibility because it does not require reimbursement to the state upon the beneficiary’s death. Remaining funds can be directed to other family members or charities.
3. Pooled Trusts:
   • Managed by nonprofit organizations that pool and invest funds from multiple beneficiaries.
   • Each beneficiary has a separate account, and the trust is managed collectively to benefit from economies of scale in investments and management fees.

Establishing a Special Needs Trust in Florida

1. Choose the Type of Trust:
   • Decide whether a first-party, third-party, or pooled trust is most appropriate based on the source of the funds and the specific needs of the beneficiary.
2. Draft the Trust Agreement:
   • Work with a knowledgeable estate planning attorney to draft a trust document that complies with both Florida law and federal regulations.
   • The trust agreement should specify the trustee’s powers, the rights of the beneficiary, and the precise use of the trust funds.
3. Select a Trustee:
   • Choose a trustee who is knowledgeable about Florida law, financial management, and the specific needs of the beneficiary.
   • Consider appointing a professional or corporate trustee if the trust requires complex management or if impartiality is desired.
4. Fund the Trust:
   • Transfer assets into the trust. This could include cash, investments, real estate, or other valuable assets.
   • Ensure proper titling of assets in the name of the trust.

Self-Settled Special Needs Trust

A self-settled special needs trust is a type of trust funded with the beneficiary’s own assets, typically established to preserve the beneficiary’s eligibility for government benefits like Medicaid and SSI, despite owning assets that would normally disqualify them.

It is usually set up by a parent, grandparent, guardian, or the court, and is meant for individuals under the age of 65 who have disabilities.

Third-Party Special Needs Trust

A third-party special needs trust is established using assets from someone other than the beneficiary, such as parents or other family members, to provide financial support for a person with disabilities without jeopardizing their eligibility for public assistance programs like Medicaid or SSI.

It is designed to supplement, not replace, government benefits and can cover expenses like personal care, education, and recreation.

Qualifying for Medical with a Special Needs Trust

Medicaid, for instance, has a low ceiling on the amount of a recipient’s countable assets; the limit is approximately $2,200 in Florida (2017). Special needs trusts are designed so that trust assets are not counted for purposes of Medicaid eligibility. The trust agreement typically allows the trustee to distribute income or assets to a beneficiary only if the distribution does not disqualify or diminish a beneficiary’s Medicaid benefit.

While trust assets are not counted for eligibility, trust income can be distributed to improve the recipient’s quality of life by paying for living expenses not covered by Medicaid. Medicaid pays for a disabled recipient’s basic needs such as mortgage payments, rent, food, and utilities. A Florida special needs trust cannot supplant or duplicate Medicaid’s needs assistance. If it does, the trust distributions may disqualify the beneficiary. A special needs trust can supplement Medicaid’s basic benefits by paying for additional care such as:

• Personal grooming
• Clothing and dry cleaning
• Electronic equipment including computers and TVs
• Musical instruments
• Companionship
• Housekeeping and cooking assistance
• Medical insurance and
• Some medical services, therapies, and equipment.

Florida Special Needs Trust Drafting and Administration

A properly drafted special needs trust should expressly state the trustmaker’s intent to help a beneficiary without affecting the beneficiary’s needs-based eligibility. A special needs trust agreement typically gives the trustee the discretion to distribute to the beneficiary income and principal, provided that the trustee maintains the beneficiary’s eligibility for assistance. The trust agreement tells the trustee that trust assets should be used to supplement but never replace or supplant public benefits. A special needs trust will fail its purpose if the trustee mistakenly uses trust money to duplicate Medicaid benefits such as basic shelter and food.

The special needs trust places much responsibility on the trustee. Suppose the trustee spends money from the trust improperly, such as spending money on basic needs already being paid by Medicaid. In that case, the trustee could cause the beneficiary’s Medicaid benefits to be lost or reduced. The trustee also needs to properly account for trust income taxation. The beneficiary of a special needs trust is liable to pay tax on all trust income even when income is not distributed. Any trustee may be personally liable for improperly administering a Florida special needs trust in a manner that adversely affects the beneficiary’s benefits eligibility.

Disabled beneficiaries are best served by having a professional trustee (accountant, attorney, or institution) serve as trustee of a special needs trust in Florida. Professionals are usually experienced with the responsibilities and liabilities of serving in a fiduciary capacity. They are usually familiar with the regulations applicable to need-based benefit programs such as Medicaid. A professional trustee will usually provide the best use of special needs trust assets for the family member who depends on the assets for Medicaid eligibility.