Portland, Oregon Special Needs Lawyer: Where Funds in a Special Needs Trust Go When the Beneficiary Dies
A Special Needs Trust is a specialized legal tool that allows a beneficiary with disabilities to utilize property or money held in the trust for his or her benefit, without jeopardizing the ability to access essential needs-based public benefits such as Supplemental Security Income (SSI) and Medicaid.
Special care is often taken by parents or loved ones of those who have disabilities to set up a Special Needs Trust in such a way that the disabled individual will have enough resources to last for life. Yet there are times when the beneficiary of a Special Needs Trust passes away before all of the resources within the trust are used up. In such cases, it will be necessary for the trustee to deal with any remaining assets.
Will the Assets Need to Go Back to the Government?
Whether or not remaining assets in a Special Needs Trust must go back to the government to reimburse for Medicaid benefits that were used depends on the type of trust that was created.
In the case of a “third party” Special Needs Trust, the trust is funded with assets that do not belong to the person with special needs. They instead come from parents, grandparents, or other loved ones who either contribute inheritances to the trust or set aside money for their loved one’s future care. If such a trust is indeed created correctly, the funds in the trust will not count as the beneficiary’s assets when applying for benefits such as SSI or Medicaid. As such, when the beneficiary dies, this trust will not need to contain a “payback provision” which requires any remaining funds to be paid back to the government.
On the other hand, if the person with special needs places his or her own money into the Special Needs Trust, (for example money that was received as part of a legal settlement) this would require the creation of a “first-party” Special Needs Trust (because the assets are contributed by the person with special needs) and will need to contain a payback provision to the government to reimburse for Medicaid benefits that were used.
What happens to remaining assets in a Third-Party Special Needs Trust?
Remaining assets that do not have to be paid back to the government in a Third-Party Special Needs Trust will go to residual beneficiaries. Residual beneficiaries may include surviving siblings, caregivers, or even a charitable cause. Generally, the person who creates the Special Needs Trust will decide when the trust is created who should inherit any remaining funds that are in the trust following the death of the beneficiary.
Keep in mind that the final distribution amount will not be determined until the Trustee pays any liens, taxes, final expenses, outstanding bills owed, and administrative costs.
If you are in Oregon and have questions about creating either a Third-Party Special Needs Trust or a First-Party Special Needs Trust, we invite you to contact us to schedule an appointment.
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To your family's health + happiness.
~Candice N. Aiston
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Candice N. Aiston is an Legal Planning Attorney for Estates + Businesses in the Portland, Oregon area. She helps people to prepare for a lifetime of security, prosperity, and guidance. If you would like to receive her free reports, please visit http://aistonlaw.com/ to sign up. Follow her Facebook page for daily planning tips: https://www.facebook.com/aistonlaw/.