Category: Financial Planning
Tags: distribution, Medicaid, special needs planning, Trusts, Financial Planning


Permitted Distributions for Special Needs Trusts

Posted on: February 13th, 2014
Special Needs Trusts

Special needs planning in North Carolina.

If you are starting to explore options for Special Needs Trusts in North Carolina, one of the first differences you discover are “third party” trusts and “self-settled” trusts. For both these types of Special Needs Trusts, distributions must be made for the exclusive benefit of the trust beneficiary. Although “third party” trusts are created and funded by a person other than the disabled person, and “self-settled” trusts are funded with the beneficiary’s own assets, both trusts follow the same restrictions for permitted distributions in North Carolina. (Note: The rules governing permissible distributions for “self-settled” Special Needs Trusts differ state-by-state from those of “third-party” Special Needs Trusts.)
 
Special Needs Trusts supplement government-funded coverage for the beneficiary’s basic needs. Permitted distributions include Internet, phone and cable bills, medical equipment not covered by Medicaid, household furnishings including furniture, fixtures, and appliances used on a regular basis (including a computer and software upgrades). The trust can be used to purchase an accessible home or make accessibility modifications to an existing home. If desired, the home can be owned by the trust.
 
While “self-settled” Special Needs Trusts and “third-party” trusts follow the same restrictions for distributions, they are different. “Self-settled” trusts must include a provision that directs the trustee to reimburse North Carolina Medicaid for any expenses paid for the beneficiary, if trust funds remain upon the beneficiary’s death.
 
So as not to impact the beneficiary’s eligibility for public benefits, distributions from a Special Needs Trust must be made to third parties. Otherwise, direct distributions to the beneficiary may be considered income. Assets in the trust and income generated by trust assets are excluded from income, but regular distributions to the beneficiary are considered income, and may affect the beneficiary’s eligibility for public benefits.
 
According to Disability Rights North Carolina, an advocate for the protection of disabled persons’ rights in the Tar Heel State, distributions from the trust used to cover the following the expenses will reduce benefits from public programs: Property taxes, homeowner’s insurance, rent or mortgage payments, and more. Our special needs trust attorneys in Chapel Hill provide a review of allowable expenses from special needs trusts here.
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