Trusts

A trust is a legal arrangement in which a person or organization manages assets for someone else. The person getting payments from the assets is called the “beneficiary” and the person or organization who is managing the assets is the “trustee.” Many kinds of assets can be put into a trust, such as cash, stocks, bonds, and real estate.

Some kinds of trusts, called Special Needs Trusts, can be set up to hold the assets of a disabled person. By setting up a Special Needs Trust, the disabled person can have these assets held for them and get Supplemental Security Income (SSI), MO HealthNet, or HUD housing benefits at the same time.

If you are the beneficiary of one of these types of trusts, your trust can have more assets in it than the resource limits for these programs would normally allow you to have. This means that if you have a trust, you can be in a more secure financial situation without losing your benefits.

It is important that either you or the person setting up the trust for you do so correctly. If your trust is not set up correctly, the assets in your trust might be counted toward the public benefits resource limits and you could lose your public benefits.

It’s important to get advice

The rules for setting up trusts can be complicated and it is important to make sure that you seek out good advice about how to set up a trust to avoid serious problems. The Midwest Special Needs Trust is a nonprofit organization that can help you understand trusts.

Special Needs Trusts

While public benefits, such as SSI, MO HealthNet, and HUD housing benefits, offer basic support for food, shelter, and medical care, a Special Needs Trust can be used to pay for other support and services that can help you. For example, money from the trust could be used to pay for your recreation expenses, telephone bill, education, and vacations. Money from a Special Needs Trust cannot be used for expenses that are already paid for by one of your public benefits.

Although Special Needs Trusts can have huge advantages, they also have strict rules. The funds must be used to benefit only you; no one else can benefit from that trust. Also, the trust is set up to help you, but payments should not be made directly to you. Payments made directly to you count as income and may affect your benefits. When you need to pay a provider for something that is not food or shelter, the trustee will pay the money from the trust directly to the provider. Only the trustee can handle the money from the trust.

First Party Special Needs Trusts

A First Party Special Needs Trust is used if you have accumulated assets, inherited assets, or gotten assets from a court settlement. In these situations, you actually own the money.

It used to be that people with disabilities were not allowed to set up their own First Party Special Needs Trust, even though it was their own money. A parent, grandparent, guardian, or court had to set up the trust, the trustee controlled the funds, and you could not be your own trustee. The laws changed in 2016, and this type of trust can now be set up by you, or by your parent, grandparent, legal guardian, or the court.

To qualify, you must be under 65 years old and must have a disability as defined by Social Security. If you do not meet Social Security’s definition of disability, you cannot have this type of trust. If you are not getting SSDI or SSI benefits, the Family Support Division’s Medical Review Team may make the decision that you are disabled.

The trust has to specify that after you die, any money left in the trust will be used to pay back the state for the amount of money the state spent on MO HealthNet for you after the trust was set up. If money is still left over after the state has been paid, it can be given to whomever you tell the trustee you want it to be given.

Pooled Special Needs Trusts

This type of trust pools assets from different people and puts them into a large investment fund. Although the funds are pooled (used together), you still have your own separate account. Pooled Trusts offer both First Party accounts (funded with only your own money) and Third Party accounts (funded only with money from other people). As with a First Party Special Needs Trust, all beneficiaries of a Pooled Special Needs Trust must have a disability that meets Social Security's standards.

A Pooled Special Needs Trust is set up through a nonprofit organization. The nonprofit organization will administer the Pooled Special Needs Trust, take care of all the tax preparation, make investment decisions, and act as the trustee.

Before the Pooled Special Needs Trust is set up, you or your family members must explain what you want the trust to pay for, and who should be consulted about these matters. Anyone can put money into the Pooled Special Needs Trust for you — parents, grandparents, even you.

Who can set up a Pooled Special Needs Trust?

  • You
  • Your parent
  • Your grandparent
  • Your legal guardian
  • The court

Any money left in the Pooled Special Needs Trust after you die will be used to pay back the state for the amount of money the state spent on MO HealthNet for you after the trust was set up. If money is still left over after the state has been paid, it can be given to whomever you tell the trustee you want it to be given.

Third Party Trusts

Third party trusts are often similar to Special Needs Trusts and sometimes are called Third Party Special Needs Trusts, but there are differences. Parents usually set up and supply the money for Third Party Special Needs Trusts, often through their wills, and sometimes by purchasing life insurance payable to the trust. These types of trusts are often established for a child with a disability, but they can also be set up for a child (or other person) without a disability. Other family members can also put money into this type of trust, such as grandparents, aunts, and uncles. The only person who cannot place money into this type of trust is you, the person who will be the beneficiary of the trust.

Some parents place their property in a "living" trust and state in that trust that a separate trust will be created for their child upon their death. This type of trust is often effective immediately. Anyone can give money to the trust by either writing a check or writing a will naming the trust as the beneficiary.

The key to a Third Party Special Needs Trust is that the money cannot be used for housing or food. Housing and food are considered "basic needs" under Social Security laws. If you are getting free housing or food from someone else, including a family member or a trust, then your SSI benefits will be reduced or stopped. This is why you don’t want to use assets from the trust for housing or food. Free housing or food, including payments for those items from a trust, are not considered income for MO HealthNet or Food Stamps and will not affect your eligibility for those programs. Your Food Stamps benefits could be reduced as you would have lower housing costs. Payments from the trust directly to you would be considered income for MO HealthNet and Food Stamps.

When creating the Third Party Special Needs Trust, whoever sets up the trust must decide who will get any assets that are left in the trust after you die. Unlike First Party Special Needs Trusts and Pooled Special Needs Trusts, the Third Party Special Needs Trust does not need to repay the government for any MO HealthNet expenses.

Get more information

Trusts are a complicated but important issue. If you have questions about trusts, you can find additional resources at the Midwest Special Needs Trust.

The Social Security Administration (SSA) also has excellent information about Special Needs Trusts and SSI eligibility.