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When the Beneficiary Passes, Where Do the Special Needs Trust Funds Go?

Jesse A. Block June 2, 2022

Two children in superhero costumes smilingWhat is a Special Needs Trust? It is an individualized legal instrument that protects a beneficiary with disabilities from losing access to essential government programs--such as Supplemental Security Income (SSI) and Medicaid--due to the beneficiary’s use of funds or assets held for them in the Special Needs Trust.

It is common for family members to create a Special Needs Trust with enough resources to care for the beneficiary for life. In the event that the beneficiary dies before the resources are depleted, the trustee will then be tasked with allocating the remaining assets.

Will the Trustee Need to Pay the Government?

Different types of Trusts establish different protections when it comes to the assets and property remaining in Trust after the beneficiary dies. For example, a “first party” Special Needs trust is funded by the beneficiary. Therefore, the government will classify the funds as personal assets of the beneficiary with special needs--and a “payback provision” will require the trustee to reimburse the government for any Medicaid benefits that the beneficiary with special needs may have utilized. However, a “third party” Special Needs trust is funded by those close to the beneficiary with disabilities. Thus, the government does not classify the assets or property as personal to the beneficiary with disabilities--so the Special Needs Trust funds will be protected from a “payback provision.” The funds will then be allocated to any residual beneficiaries--generally decided upon by the creator of the Special Needs Trust. If the creator of the Special Needs Trust does not specify any residual beneficiaries, which may be siblings, family members, charitable causes, etc.

Of course--no matter the type of Special Needs Trust--the Trustee will be responsible for settling the deceased’s liens, taxes, final expenses, outstanding bills owed, and administrative costs before the final distribution amount can be calculated.

Do you live in Kennesaw? Are you interested in forming a Special Needs Trust for yourself or a loved one with disabilities? Give Kennesaw special needs attorney Jesse A. Block a call today at (770) 387-4529 today to schedule a free consultation.