Michigan Special Needs Trust

How To Provide A Comfortable Life For Your Special Needs Loved One Without Hurting Their Government Benefits Like SSI and Medicaid

Benefits of Creating a Special Needs Trust

  • Get peace of mind that your loved one will be taken care of after you’re gone
  • Supplement your disabled family member’s government assistance to provide care and services that their benefits do not cover so they can live comfortably
  • Protect your loved one from losing their government benefits like Supplemental Security Income (SSI), Medicaid, subsidized housing, and vocational rehab
  • Appoint someone you trust to manage the finances on behalf of your disabled family member to make sure they are taken care of according to your wishes
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Why Do You Need a Special Needs Trust in Michigan?

Many families with a special needs child or family member worry about who will take care of their loved one when they are no longer able to do so themselves.

Oftentimes special needs family members qualify for government assistance such as Supplemental Security Income (SSI), Medicaid, subsidized housing, and vocational rehab. 

But even with government assistance, it’s not uncommon for families to save additional money to make sure that their disabled loved one will be taken care of and provided for in the best way possible beyond just what government benefits provide.

Unfortunately, the government puts strict limitations on the eligibility for these programs based on the amount of a recipient’s income and financial resources.

This means that improperly leaving behind an inheritance or large sum of money for a disabled loved one can actually jeopardize their eligibility to qualify for their much needed government assistance programs. 

So what are you supposed to do if you want to provide additional funds for a disabled family member so that they can live comfortably after you’re gone? 

Or, what if they receive a sizeable financial award from a lawsuit? 

These situations could easily result in their benefits being reduced or lost altogether. 

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Fortunately, a Michigan Special Needs Trust is a proven solution that allows you to provide for your special needs loved one while being able to preserve their government assistance. 

What is a Special Needs Trust?

Oftentimes families want to leave behind an inheritance for a disabled loved one in the form of money or life insurance to make sure they are taken care of beyond just what their government assistance programs provide.

But, one of the biggest risks of leaving behind an inheritance for a disabled loved one is that this money may disqualify them from receiving their much needed government assistance.

To prevent this, people set up a Special Needs Trust for their disabled beneficiary because a Michigan Special Needs Trust can collect and manage assets on behalf of your loved one without disqualifying them from their benefits.

Supplemental Needs Trust vs Special Needs Trust...
What’s the Difference?

A common question people have is what’s the difference between a Supplemental Needs Trust vs Special Needs Trust. 

There’s no difference between the two, they are just different names for the same document. Depending on who you are talking to, they may refer to it as either a Special Needs Trust or Supplemental Needs Trust, but just know that they are the same thing and the information in this article applies to both.

People also ask if a Revocable Living Trust is the same thing as a Michigan Special Needs Trust. 

The answer is no. 

While a Revocable Living Trust is a very popular estate planning tool, it is used to achieve different estate planning goals and is structured completely differently. 

If you would like to know which of these trusts would be best for you and your family, you should contact an experienced trust attorney.

How Does a Michigan Special Needs Trust Work?

A Special Needs Trust is a type of irrevocable trust that is set up specifically to benefit an individual with disabilities and prevent them from losing government assistance. There are three important parties to know about when creating a Michigan Special Needs Trust…

Settlor

The person who is creating the trust to protect their family member is known as the settlor or grantor. As the settlor, you will put the assets into the trust for the benefit of the disabled beneficiary.

Beneficiary

The beneficiary of the trust is your special needs loved one that you are setting up the trust to provide for and protect.

Trustee

The trustee of the trust is the person who is responsible for managing the trust and its assets on behalf of the beneficiary. 

The trustee is incredibly important because this is the individual who is managing and handling the money in a way that does not disqualify the beneficiary from receiving their benefits. 

This is a very important role that requires someone responsible and trustworthy.

How does the beneficiary get access to the funds in a Michigan Special Needs Trust?

In order for your beneficiary to get money from the trust, the money needs to go through the trustee. 

If the money goes directly to the beneficiary, the government programs may consider this as additional income. If this happens, it may damage your loved one’s ability to collect their benefits. 

Having the money go through the trustee is key to preventing the beneficiary from being disqualified from assistance programs.

As you can see, the trustee is really important. This is why you need to appoint someone that is responsible, competent, and trusted by your family. 

Since the disabled beneficiary can’t directly access the money in the Michigan Special Needs Trust themselves, the trustee will be responsible for using the money in the trust to supplement your loved ones benefits by paying for things like a caregiver, medical and dental expenses, physical therapy, vehicles, school, furniture, and vacations.

Now that you have an understanding of why you need to set up a Special Needs Trust, the key parties involved, and how the trust works, it’s important to understand the difference between a Third Party and First Party Special Needs Trust.

Schedule a free consultation with an experienced Special Needs Trust Attorney today! Call us now at (248) 613-0007

Third Party Special Needs Trust vs First Party Special Needs Trust

Third Party Special Needs Trust

A Third Party Special Needs Trust is one of the most common trusts used to help care for and provide for the needs of a disabled person. 

These types of trusts are often set up as part of an estate plan by parents or family members who want to leave behind money, property, or life insurance after they die to be used to take care of their disabled loved one and provide a comfortable life without hurting their ability to qualify for government benefits.

By transferring the assets into the trust, your disabled beneficiary never owns the money or assets. As a result, their government benefits won’t be negatively impacted. This gives you the peace of mind that your loved one will be taken care of, even after you are no longer here to care for them yourself. 

The reason it’s called a Third Party Special Needs Trust is because it is funded with money and assets that don’t belong to the beneficiary. This is one of major differences when comparing a Third Party Special Needs Trust vs First Party Special Needs Trust.

First Party Special Needs Trust

A First Party Special Needs Trust, also known as a self-settled trust, is funded with money that belongs to the beneficiary. One of the main reasons people set up this type of Michigan Special Needs Trust is to receive, hold, and manage a financial award from a legal settlement or lawsuit that would disqualify the disabled recipient from their government assistance.

Why is the difference between Third Party vs First Party Special Needs Trust important?

The distinction between a Third Party and a First Party Special Needs Trust is important because the way the trust is categorized can affect whether or not your beneficiary can qualify for certain benefits.

These types of trusts are very complex and if it is not drafted properly, it can jeopardize your loved one’s benefits.

If you are interested in drafting a Michigan Special Needs Trust, it’s best to schedule an initial consultation with an experienced Special Needs Trust Attorney who can ensure that the trust is set up properly to protect your loved one’s benefits.

What happens to a Special Needs Trust after the beneficiary dies?

A common question is whether or not any remaining money in the trust will have to be paid back to the government to reimburse for any Medicaid benefits used after the beneficiary passes away. This depends on whether or not the trust was a third-party Special Needs Trust or first party Special Needs Trust.

With a third party special needs, the trust is funded with money that does not belong to the disabled beneficiary. If the trust is structured properly, this means that the beneficiary doesn’t own any of the assets which is what protects their SSI and Medicaid benefits. This also means that when the beneficiary passes away, there doesn’t need to be a payback provision that requires funds to be paid back to the government for reimbursement. Instead, the remaining money can go to residual beneficiaries names in the trust such as siblings.

This differs from a first party Special Needs Trust. Since this trust is funded with money that the disabled beneficiary owned, the trust does contain payback provisions to the government for Medicaid benefits that were used.

Michigan Special Needs Trust Rules

Can a Special Needs Trust be dissolved?

A Special Needs Trust must be an irrevocable trust. This means that it can’t be dissolved, revoked, or changed after it is created. Once the trust has been made legally binding, the money belongs to the trust and is managed by the trustee. The money and assets need to be handled by the trustee and can’t be accessed directly by the beneficiary in order to preserve the disabled beneficiary’s benefits.

Does a Special Needs Trust affect SSI?

If the funds are held in a properly structured Special Needs Trust, your loved one’s SSI and Medicaid benefits won’t be negatively impacted. But things can become more complicated when funds start getting withdrawn from the trust which causes confusion about what can you purchase with a Special Needs Trust.

What expenses can a Special Needs Trust pay for?

To get a better understanding of what a Special Needs Trust can pay for, it’s best to consult with a Special Needs Trust Attorney. That’s because if money is paid directly to the beneficiary or if funds are used to pay for things like food or shelter, the beneficiaries benefits could be negatively affected. The next section will go over some general Special Needs Trust spending rules.

Special Needs Trust Spending Rules

Aside from cash, food, and housing, Special Needs Trust allowable expenditures include a variety different expenses to supplement your disabled loved one’s lifestyle beyond just what their government benefits provide.

Before you distribute any money for expenses, always make sure you check with your Special Needs Trust Attorney to make sure it won’t hurt the beneficiary’s benefits. Here are a few examples of Special Needs Trust allowable expenditures that are fairly typical:

  • A Special Needs Trust can pay for a caregiver
  • Medical expenses
  • Dental expenses
  • Physical therapy
  • Vehicles
  • Education
  • Furniture
  • Vacations
special-needs-trust-expenses

Can you have both a Special Needs Trust and an ABLE Account?

Since the passage of the Achieving a Better Life Experience Act (ABLE Act) in 2014, disabled individuals and their families can now benefit from setting up an ABLE Account in addition to a Special Needs Trust.

How To Set Up A Special Needs Trust

If you are interested in creating a Michigan Special Needs Trust, it’s always best to schedule an initial consultation with a Special Needs Trust Attorney. These types of trusts are very complex and if it is improperly structured, your loved one can lose their needed benefits.

Everyone’s situation is different. While this article covered a lot of the basics about Special Needs Trust planning, the best way to get customized answers based on your family’s specific needs is to speak with a licensed professional attorney who can make sure your disabled loved one is properly protected.

At Rochester Law Center we’ve helped 1,000s of clients protect their families and accomplish their unique estate planning goals. Give us a call today to schedule a free initial consultation with one of our experienced Special Needs Trust Attorneys. Call us now at (248) 613-0007.

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Written By Chris Atallah - Founder, Rochester Law Center, PLLC
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Written By Chris Atallah - Founder, Rochester Law Center, PLLC

Chris Atallah is a licensed Michigan Attorney and the author of “The Ultimate Guide to Wills & Trusts – Estate Planning for Michigan Families”. Over that past decade, Chris has helped 1,000s of Michigan families and businesses secure their futures in all matters of Wills, Trusts, and Estate Planning. He has taught dozens of seminars across the State of Michigan on such topics as avoiding the death tax, protecting minor children after the parents’ death, and preserving family wealth from the courts and accidental disinheritance. If you have any questions, Chris would be happy to answer them for you – just call at 248-613-0007.