Caring for a loved one with a disability can be difficult, especially when it comes to providing for them financially in both the short and long term. You may be worried about how you can give your loved one money or property without interfering with their qualification for essential government benefits like Medicaid or Supplemental Security Income (SSI). However, this can be done with the creation of a special needs trust (SNT).

Trust Basics

When you establish a trust for your loved one, they benefit from the money and assets in the trust, but do not have control of them directly. A trust is a way to protect assets for the benefit of the disabled person while preserving his or her qualification for public benefits.

A trustee is chosen by you to administer the trust and this person will decide how the money is spent on the beneficiary’s behalf. For example, a trustee may use funds from a SNT to pay for a caregiver to come into the home of the beneficiary or to buy a specialized vehicle for their transportation.

Types of Special Needs Trusts

There are different types of special needs trusts. First-party trusts are funded with the assets of the trust beneficiary, while third-party trusts are funded with assets of someone other than the trust beneficiary. Each comes with its own set of requirements and it is important to evaluate your needs to decide which is the right option given the situation and needs.

The basic difference between the first two types of trusts lies in who is funding it. If the property or money that funds the trust is in the name of the beneficiary of the trust, then it is a first-party trust. If it originates from another person then it is a third-party trust. There are nonprofit organizations that administer what is called pooled trusts. These trusts may be first or third party, depending upon the terms of the master trust agreement and the source of the funding.

First-Party Trusts

First-party special needs trusts are commonly used when a person with a disability previously inherited money or property from a loved one, is awarded a court settlement or in cases where a person becomes disabled and had assets of their own before that happened.

A first-party SNT comes with the requirement that, upon the death of the beneficiary, the trust must be used to pay back the state for the total amount of Medicaid benefits received. If there is money or other assets left over after paying the state, it can be distributed to any other beneficiaries.

Third-Party Trusts

Third-party trusts are commonly established by the parents, grandparents or other loved ones of a person with a disability when they are planning their estates and want to leave money, property or other assets to them without jeopardizing benefits. These trusts will not need to be used to repay the state for Medicaid benefits upon the death of the beneficiary.

Pooled Trusts

A pooled trust is managed by a nonprofit organization. Although each beneficiary maintains their own account, their money is pooled together with that of the other trust beneficiaries who utilize the pooled trust services and invested together.

What happens upon the death of the beneficiary depends upon the terms of the master agreement for the pooled trust. For pooled trust that are funded with first-party money, the funds will either be retained by the nonprofit upon the death of the beneficiary, or they will be used to repay the state for Medicaid benefits used during the lifetime of the beneficiary upon their death.

Setting Up a Special Needs Trust

It is crucial to discuss which trust is right for your loved one with an experienced special needs trust attorney. The laws and regulations surrounding SNTs are complex, and not preparing a trust correctly can have dire consequences.

As estate and special needs planning professionals, we at the Hazen Law Group understand how stressful and complicated planning for the care of a child or loved one with a disability can be. You do not have to face it alone. Contact us for a consultation. We are proud to help you protect your family.

Hazen Law Group’s special needs planning attorney Marielle F. Hazen is a member of the Board of Directors of the Special Needs Alliance, a national nonprofit organization dedicated to Disability and Public Benefits Law. The Special Needs Alliance website is a valuable resource for individuals with disabilities and their families. To learn more visit: www.specialneedsalliance.com