Disability Trust

• The grantor of a Special Needs Trust is a third party. Maybe a parent or grandparent. This third party owns the assets and places them into a Special Needs Trust for the benefit of the person with the special need.


• The grantor of a Disability Trust is the person with the disability (or special need). The assets are placed into the trust to be used for the disabled person's own benefit.

As detailed at Special Needs Trust and Medicaid Trust, generally, a trust that you control and benefit from will disqualify you from Medicaid or Supplemental Security Income (SSI).

So, the challenge with both Disability and Special Needs Trusts is to set the trust up so it can provide supplemental support to the beneficiary, but not disqualify him or her from Medicaid or SSI.

With a Special Needs Trust, it is relatively easy to name an independent trustee, give him or her wide discretion as to how and when to provide assistance, and thus prevent the assets, in the trust, from being attributed to the beneficiary. This is how a Special Needs Trust avoids disqualifying the beneficiary. [Note: this is also why Special Needs Trusts are generally effective in protecting assets from creditors of the disabled child.]

Fortunately, federal law [Social Security Act at 42 U.S.C. 1396p(d)(4)(A) or (C)] permits disabled persons to have "qualified" Disability Trusts and still keep their SSI or Medicaid benefits.

However, the trust must qualify under the law. These "qualified" Disability Trusts are commonly referred to as "D4A Trusts" because of the code section (cited above) that authorizes them.

To be a qualifying Disability Trust, the trust must:

• Allow only for provision of "supplemental" benefits. [However the definition, in the law, of what is an authorized supplemental benefit is fairly broad.]


• If there is money left in the trust, after the death of the beneficiary, the trust must provide that the state Medicaid agency be repaid for benefits the beneficiary received from the government. This is commonly referred to as the "payback provision."

Qualified (D4A) Disability Trusts are often used as part of personal injury settlements. For instance, if someone is in a terrible car accident, and disabled for life, there often will be a D4A trust set up for the victim, as part of the settlement.

You can get lots more information about D4A trusts and medicaid qualification at Medicaid Secrets. If you have specific questions you can ask them at living trust questions or (for a small fee) at:

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