A Special Needs Trust is used to hold the assets of a disabled person. A properly drafted Special Needs Trust can provide for distributions to enhance the life of a disabled person and at the same time protect the assets in the trust from being considered a “resource” (which would disqualify the disabled person for state or federal benefits). Depending on the type of Special Needs Trust, on death, the state may need to be reimbursed for benefits on behalf of the disabled person.
What is a First-Party Special Needs Trust?
A first-party Special Needs Trust is a trust that a disabled person establishes for himself to shield assets from being counted as an available resource for determining public benefit eligibility. Most of these first-party trust must meet various requirements, including a provision that allows for government assistance programs to be repaid amounts given to the beneficiary at his death.
However, a first-party Special Need Trust allows for the beneficiary’s wealth to be shielded during his lifetime and be used for his supplemental expenses. These trusts are useful tools to hold a personal injury settlement as well as a disabled person’s wages. The funding of these trusts should come from the disabled person’s own assets.
First-party trusts may be added to collective regulated pools in order to allow for administration affordability and a better opportunity for asset growth.
What is a Third-Party Special Needs Trust?
A third-party Special Needs Trust is a trust that you create for disabled persons other than yourself. If you intend to leave assets to a person who is receiving, or may receive in the future, means-tested government benefits because of a disability, leaving assets to a trust for the benefit of that person will allow the beneficiary to enjoy the assets for supplemental expenses, while shielding the trust assets from being counted for benefits eligibility purposes.
Unlike most first-party Special Needs Trusts, these trusts do not require that the trust balance at the beneficiary’s death be used to repay government assistance programs utilized by the beneficiary during his lifetime.
These trusts must provide that assets may not be used for certain expenses that are covered by disability benefits. However, in certain instances, it may be best to give the Trustee the discretion to pay for those expenses in lieu of the benefits, if doing so would provide the beneficiary with a better standard of care. Each situation is unique.