A special needs trust is a specific type of trust that is intended to provide financial support to someone who has special needs or who is disabled. Because someone with a disability or who has special needs is likely also receiving assistance from state and/or federal programs such as Medicaid or Supplemental Security Insurance (SSI), great care must be taken when gifting assets to the individual or when the individual receives funds directly. The solution can often be found in the creation of a special needs trust. Understanding the different types of special needs trusts will help you decide which type you need to establish.
Why Is a Special Needs Trust Necessary?
As the parent, or loved one, of a child with special needs or someone with a disability, special care must be taken when estate planning because gifting assets directly to your child or loved one could do more harm than good. Adults with special needs or disabilities often depend on state and federal assistance programs such as Medicaid, Medicare, or SSI. Those programs, however, typically have income and asset limits that cannot be exceeded by recipients. Gifting assets to someone with a disability or special needs, therefore, can result in disqualification for many of these much-needed programs. The solution is often found in the creation of a special needs trust.
Third Party Special Needs Trust
As the name implies, a third party special needs trust is established by the third party with assets of the third party for the benefit of a person with a disability or with special needs. This type of trust is most often established by a parent, or other family member, for the benefit of a child with special needs and uses assets of the parent, grandparent or family member. This type of trust must include specific language and must be worded such that the assets in the trust are actually distributed to a third party, such as the parent, to be used for the benefit of the individual with special needs. Because the assets held in the trust are not available to the beneficiary, those assets do not disqualify the beneficiary from eligibility for assistance programs such as Medicaid and SSI. In fact, the idea behind this type o special needs trust, which is also referred to as a “supplemental needs” trust, is that the assets held in the trust will be used to “supplement” the benefits provided by the state and federal government.
First Party Special Needs Trust
The other common type of special needs trust is a first party, or self-settled, special needs trust. This type of special needs trust is established using assets of the disabled individual or person with special needs. It must be established by the parent, grandparent, guardian of the person with a disability, or by a court. Only the person with a disability can be the beneficiary of the trust. This type of special needs trust is most frequently needed when a disabled individual receives a lump sum of money, such as the result of a settlement for injuries in a personal injury accident. The lump sum would likely disqualify the beneficiary from eligibility for assistance from Medicaid, SSI, and other state and federal assistance programs. One of the other important differences between a third part and a first party special needs trust is that with a first party trust, any assets remaining in the trust upon the death of the beneficiary must be used to pay back Medicaid. With a third party special needs trust there is no need to worry about repaying Medicaid.
If you have additional questions or concerns, contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.