Our Tampa special needs lawyers are often contacted after the death of a loved one with disabilities to find out what happens with any money left over in a Special Needs Trust. The answer to that question depends on the type of trust that was initially created, and the instructions set forth in the actual trust document.
First, it helps to understand what a Special Needs Trust (SNT) is. Basically, an SNT allows a beneficiary with special needs to safely utilize money or property in the trust without jeopardizing the ability to collect needs-based public benefits such as Supplemental Security Income (SSI) and Medicaid.
If a person with special needs passes away before all of the money placed in the trust have been used up, the trustee will have the responsibility to deal with any remaining assets. This may include returning assets to the government or distributing remaining funds to named beneficiaries.
Funds in a Third-Party Trust Do NOT Need to Be Paid 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 during the person’s lifetime 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 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.
Funds in a First-Party Special Needs Trust WILL Need to Be Paid Back
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.
Who Inherits Assets that Do Not Need to Be Paid Back to the Government?
Any 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 live in Florida and you have questions about how to properly administer funds left behind in a Third-Party Special Needs Trust or a First-Party Special Needs Trust after the death of a loved one, we invite you to contact our law firm at (813) 438-8503 to schedule an appointment.