Special Needs Trusts, It's What We Do!Skip to Content
A Special Needs Trust describes an Irrevocable Trust holding assets for a person receiving needs-based government benefits. The person who benefits from the Trust is the “beneficiary.” Typically, the Beneficiary is an individual with physical or mental disabilities who qualifies for needs-based benefits, such as Medicaid. Giving this person money or making them an heir would disqualify them. Congress developed Special Needs Trusts to hold assets for these people without excluding them from benefits. A Special Needs Trust allows you to look out for your loved one by providing them with little extras. You improve their life but don’t harm their benefits.
An irrevocable trust, a First Party Special Needs Trust holds a special needs person’s assets. The Trustee uses these assets for the Special Needs Person’s care. But does not disqualify them from needs-based government benefits like Medicaid.
First, Party Special Needs Trusts often hold legal settlements. Other examples include inheritances or divorce settlements. The goal is to continue using needs-based benefits and enjoy the benefits of the new assets. Because these are the SNT person’s assets, unused amounts must be applied to reimburse Medicaid.
Example: George, a Philadelphia resident, becomes a Special Needs Person due to a car accident. He begins collecting Medicaid. Years later, his lawyer obtained a $100,000 settlement. George places the money in a First Party Special Needs Trust. George continues to collect Medicaid. At his death, the SNT still holds $60,000. George used $150,000 of Medicaid benefits. The successor trustee must apply the $60,000 towards the $150,000 “debt.”
Unlike First Party Special Needs Trusts, Third Party trusts are Irrevocable Trusts funded using other people’s money. If properly drafted, the Trustee can use these funds to provide for the Special Needs Person without disqualifying them from needs-based government benefits such as Medicaid. Because the funds never belonged to the Special Needs Person, at death, any remaining money does not have to be applied to reimburse Medicaid.
Third-Party SNTs are typically created as part of the parent’s estate plan.
Example: Grandpa is a Bucks County, Pennsylvania resident and directs his Estate Planning Lawyer to draft a Will. The Will includes a Third Party Special Needs Trust for Grandson. At Grandparent’s death, the executor funds the Trust. The Trustee can provide for Grandson. Grandson, a Camden County, New Jersey resident, continues to receive NJ Medicaid benefits. At Grandson’s death, the SNT still holds $100,000. This money does not have to pay back to New Jersey for Medicaid use. Instead, it passes outright to the Granddaughter, per Grandparent’s Will terms.
Sometimes a Special Needs Person owns assets, but forming a First Party Special Needs Trust is inconvenient or impractical. The funds can be contributed to a Pooled Special Needs Trust in these cases. As the name suggests, the funds are “pooled” with those of other Special Needs people’s resources, creating economies of scale. The professional Trustee manages the funds for the Special Needs person, but at death, the funds must be applied to reimburse Medicare.
A child may incorporate a Third Party Special Needs Trust in his Will to protect a Special Needs Parent. If the parent survives the child, funds pour into the Trust. Onxcw funded, the Third Party Special Needs Trust can provide for the parent’s care but will not disqualify the parent from needs-based government benefits. If the child is the Special Needs Parents’ guardian, the child should also make arrangements for a successor guardian should the child die. This way, the parent isn’t left without a Guardian of the Person or Guardian of the Estate.
SNT is an abbreviation for a Supplemental Needs Trust or a Special Needs Trust. These are two ways to describe a trust created to hold assets for a Special Needs Person without disqualifying that person from needs-based government benefits.
When someone refers to a Special Needs Trust Fund, they speak about a Special Needs Trust or a Supplemental Needs Trust. These trusts can be Third Party Special Needs Trusts using the funds of someone other than the Special Needs Person or a First Party Special Needs Trust funded with the Special Needs Person’s funds.
These two terms are interchangeable. A Supplemental Needs Trust and a Special Needs Trust are two ways to describe a trust created to hold assets for a Special Needs Person without disqualifying that person from needs-based government benefits.
If you are your Special Needs Child’s primary caregiver, your child’s safety and security are your responsibility. This responsibility includes preparing for your child’s care at your death. If your child is competent, ensure he has designated a trustworthy Agent Under a Power of Attorney. If your child cannot sign a Power of Attorney, take the time while your input is available to have a court-appointed Guardian of the Person and Guardian of the Estate. Further, your Estate Plan should incorporate a Third Party Special Needs Trust utilizing a reliable Trustee and, as a balance, a team of Protectors.
Special Needs Trust Financial Planning refers to focusing the investments owned by a Supplemental Needs Trust or a Special Needs Trust to benefit the Special Needs person best. The Trustee selects the investment advisor. The Trustee should make investments after considering the Special Needs Person’s age, particular needs, and expected life span.
A Self-Settled Special Needs Trust refers to a First Party Special Needs Trust created by the Special Needs Person for themself.
A Special Needs Trust Lawyer is an Estate Planning Lawyer with experience in drafting Special Needs Trusts.
When someone asks about an Irrevocable Special Needs Trust, they typically speak of a Third Party Special Needs Trust. Parents or grandparents often create these trusts to provide care for a Special Needs Child or Grandchild without disqualifying that person from needs-based government benefits.
Please get in touch with us if you have any questions about Special Needs Trusts or other estate planning topics. Schedule a free consultation. Klenk Law has focused only on Estate Law for more than two decades. We’ve seen it all, and this experience allows us to explain complex estate planning techniques clearly and concisely. We make it easy for you to understand Special Needs Trusts so you can make the best decisions for yourself and your family.
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