What is a Special Needs Trust?
A Special Needs Trust (SNT) is designed to manage and protect assets for a disabled beneficiary without jeopardizing their eligibility for needs-based government benefits. SNTs should be drafted by a qualified attorney, as there are specific trust provisions that must be included in the trust document in order to qualify the trust as an SNT under both federal and state law. For example, the trust should include specific SNT language that generally prohibits distribution of funds directly to the disabled beneficiary but allows funds to be used to pay for goods or services for the beneficiary that supplement but do not replace goods or services provided by needs-based government benefits.
Who can establish a Special Needs Trust?
Although Special Needs Trusts are commonly set up by parents for their disabled children, any third party can establish one for the benefit of a disabled individual. If you are a grandparent or a concerned uncle and aunt, you can establish a Third-Party Special Needs Trust.
What is the difference between a first-party and a third-party trust?
A first-party trust is funded with the special needs trust beneficiary’s own money or assets. Because of this, Medicaid has a lien on the funds and gets a portion of the remaining assets upon the death of the beneficiary. While almost anyone can establish a third-party special needs trust, a First Party Trust can only be established by one of the following- the disabled person, parent, grandparent, legal guardian, or a court.
A third-party trust is funded by somebody other than the special needs trust beneficiary (family member, friend, etc.). There is no Medicaid Payback here – the donor gets to decide what to do with the remaining funds upon the death of the beneficiary.
Our family has enough assets and wealth. Do we still need to set up a special needs trust for a disabled individual we care for?
Yes, it’s still important to set up a Special Needs Trust. This trust can shield your disabled beneficiaries from potential creditors. For instance, if they are ever involved in a personal injury lawsuit, the assets within the trust are protected and not accessible to the plaintiffs. Additionally, because the funds in a Special Needs Trust are not considered available assets for government benefit eligibility, more of your money can be used for supplemental expenses, enhancing your beneficiary’s quality of life. Without this trust, significant assets could be spent on costly private care, which can quickly deplete even substantial resources.