Special Needs Trusts (SNTs) are often utilized as a planning tool for parents who want to ensure a child with disabilities is taken care of in the future. SNTs can manage a beneficiary’s assets in a way that allows him or her to maintain eligibility for public benefits. Public benefits such as Supplemental Security Income (SSI) and Medicaid have strict resource and income eligibility requirements. If a beneficiary has or can access additional resources or income above the eligibility amounts, the beneficiary would likely be disqualified from receiving his or her public benefits. An SNT can help a beneficiary maintain eligibility for public benefits and allow him or her to take advantage of additional assets to improve his or her quality of life.
Two of the more common types of SNTs are first party SNTs and third party SNTs.
A first party special needs trust is a trust that is funded with assets belonging to a special needs beneficiary and is commonly utilized in situations where the beneficiary is set to receive a settlement or an unexpected inheritance. First party special needs trusts are required to have a Medicaid payback provision. To the extent funds remain in the trust after the beneficiary’s death, Medicaid has a claim against the beneficiary’s estate for reimbursement for the medical assistance paid on behalf of the beneficiary by Medicaid. First party special needs trust should never be funded with the assets of a third party donor.
Third party special needs trusts, as the name suggests, are created by someone other than the beneficiary. They are commonly utilized in a third party donor’s estate plan to supplement the beneficiary’s government benefits. Because the third party special needs trusts are created with assets that never belonged to the beneficiary, they are not required to contain a Medicaid payback provision. Assets remaining in the trust upon the beneficiary’s death can be passed to other individuals as a part of the third party donor’s estate plan.
Your special needs planner can help you determine which type of trust best suits your particular circumstances. Abrahams Kaslow & Cassman LLP has over 75 years of experience counseling individuals and families on estate planning needs. Our attorneys are members of the Academy of Special Needs Planners – a network of attorneys and financial planners who provide special needs planning services.
Contact Tyler Johnson at [email protected] for more information.