Building Your Assets and Wealth

Trust Funds

A trust is a legal arrangement in which a person or organization manages assets for someone else. The trust's assets can then be used to make payments for that person's expenses. The person whose expenses are paid for by a trust 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, Supplemental Care Trusts, or Supplemental Needs Trusts) can be set up to hold assets for a person with a disability. When in a Special Needs Trust, the assets do not affect the person's eligibility for programs like Supplemental Security Income (SSI), Health First Colorado (Medicaid), and Section 8. That means that if you are the beneficiary of a Special Needs Trust, your trust can have more assets in it than the resource limits for benefits programs usually allow. This can let you be more secure financially without losing your benefits. For more details, see Social Security's information about Special Needs Trusts and SSI eligibility.

The trust must be set up correctly. If your Special Needs Trust is not set up correctly, the assets in your trust might be counted toward public benefits resource limits and you could lose your public benefits. And after you die, the type of Special Needs Trust that was set up determines whether or not the assets in the trust have to be used to repay the government for any Health First Colorado (Medicaid) expenses.

Special Needs Trust Rules

While public benefits, such as SSI, Health First Colorado (Medicaid), and HUD housing benefits, offer basic support for food, shelter, and medical care, a Special Needs Trust can be used to pay for other things. 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 should not be used for expenses that are already paid for by one of your public benefits, or this might affect your benefits. Some Special Needs Trusts say specifically that the money cannot be used to pay for these types of expenses.

Additionally, the funds in some types of Special Needs Trusts can be used to benefit only you; no one else can benefit from the trust unless it is what is called a Third Party Trust. And while the trust is typically set up to help you, payments should not be made directly to you. Payments made directly to you count as income and may affect your benefits.

Only the trustee can handle the money from the trust. 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. In some cases, the trustee may give you regular monthly cash payments, to increase your sense of independence, but the trustee must make sure the the amount you are given does not exceed the income limits for your public benefits.

The three most common types of Special Needs Trusts are:

Each type of trust has its advantages and disadvantages, and the right type for you depends on your specific circumstances. These types of trusts are explained below.

Note: If you get (or are applying for) Health First Colorado (Medicaid) and a trust is set up to benefit you, the trust must be reviewed (and for some types trusts, officially approved) by Health First Colorado (Medicaid).

Get advice before setting up a trust

Trusts are complicated. Contact an attorney who specializes in them so that you can get advice about which type of trust is right for you and how to set it up. If you don't do things right, you could have serious problems.

Find an attorney through the Special Needs Alliance or the Colorado Bar Association.

Disability Trusts

Disability Trusts, sometimes called Self-Settled Trusts, are used if you have accumulated assets, inherited assets, or gotten assets from a court settlement. In these situations, you actually own the money.

A Disability Trust can be set up by you, your parent, grandparent, or legal guardian, or by a court. To qualify, you must be under 65 years old and must have a disability that meets Social Security's standards. If your disability doesn't meet these standards, you cannot have this type of trust.

After you die, any money left in the Disability Trust will be used to pay back the state for the total amount of money it spent on Health First Colorado (Medicaid) benefits for you. If money is still left over after the state has been paid, the trustee will give it to whomever is listed to get the money after you die.

Pooled Special Needs Trusts

A Pooled Trust can be set up by you, your parent, your grandparent, or your legal guardian, or by a court. Also called Self-Settled Pooled Trusts, this type of trust uses the 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. To have a Pooled Trust, you must have a disability that meets Social Security's standards and be under age 65 (or if you are 65 or older, you might have to wait a period of time before you get benefits from the trust).

A Pooled 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.

A Pooled Special Needs Trust can be set up so that after you die any money left in the trust is used to pay back the state for the amount of money it spent on Health First Colorado (Medicaid) for you. Or, in some cases, the remaining money can be kept ("retained") in the trust.

Third Party Trusts

A Third Party Trust can be set up by your parent, your grandparent, your legal guardian, or the court, using their own money, including money coming as an inheritance. As long as the trust is set up correctly (with money from other sources and not your own money), a Third Party Trust does not have to repay the government for any Health First Colorado (Medicaid) expenses.

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 set up for a child with a disability, but they can also benefit a child or children (or other person or other people) without a disability. A parent can set up a trust for a child of any age, from a baby up to a senior. For example, a mother who is 90 years old could set up a trust for her 65-year-old daughter.

Other family members, such as grandparents, aunts, and uncles, can also put money into this type of trust. 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 leave instructions 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.

If you get SSI, the money from a Third Party Special Needs Trust should not be used for housing, food, or medical expenses. 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, your SSI benefits can be reduced or stopped.

Note: Money from an ABLE account that is used for housing or food will not reduce SSI benefits. An ABLE account can be used in combination with a Special Needs Trust. Learn more about ABLE accounts.

When creating a 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.

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