What happens if there are assets left in the trust after the beneficiary dies?
This is a very good question, and the answer to it covers an important aspect that you have to understand to fully grasp the total concept. If you establish a special needs trust for the benefit of someone else with your funds, it would be a third-party special needs trust.
In the trust declaration, you would name a successor beneficiary that would assume ownership of assets that remain in the trust after the passing of the first beneficiary.
The Medicaid program is required by law to seek reimbursement from the estates of people that pass away after having been enrolled in the program. The assets that remain in a special needs trust that was funded by a third-party cannot be touched by Medicaid, so they would make no recovery efforts.
This being stated, it is possible for a parent, a grandparent, a legal guardian, or a court to use funds that are the property of the beneficiary to establish a special needs trust in their behalf. In legal parlance, this would be a self-settled or first party special needs trust.
Everything would be the same with regard to the ability of the trustee to utilize trust assets to make the beneficiary more comfortable in certain ways. That’s the good news, but there is some bad news as well. Any remainder that is left in the trust after the death of the beneficiary would be fair game for Medicaid during the estate recovery phase.
This is why you would not want to leave a direct inheritance to a benefit recipient, even though it is possible to create a special needs trust after the fact.