Excerpt from: Special Needs Planning (click for full article)
Simply put, the Special Needs Trust – which is established by placing funds and other assets under the control of a trustee – is a legal document which is designed solely for the financial protection of an individual with a disability. It is the only legal way for a beneficiary (the individual with a disability) to receive the benefit of unlimited extra income without sacrificing valuable state and federal benefits. It is of the utmost importance that the Special Needs Trust be written correctly. A trust which has been established without regard for the eligibility laws may disqualify a person with disabilities from government benefits, specifically from Supplemental Security Income (SSI) and Medicaid. (Note: In most states, Medicaid is automatic when a person with special needs qualifies for SSI.)
A short explanation to the answer that you are probably now asking yourself (how is that possible?) is this: SSI and Medicaid are needs-based government benefits. In order to qualify for these benefits, a person with a disability cannot assets totaling more than $2000 in their name. If the Special Needs Trust is completed correctly, it becomes its own entity. As such, any funds or assets which fall under the Special Needs Trust will not be considered an asset of either the grantor (the person who establishes the trust) or the beneficiary (the person with special needs). Therefore, the beneficiary will still qualify for SSI and Medicaid, as they will not have these funds or assets totaling more than $2000 in their name.
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