Caring for a loved one with special needs involves unique challenges, including financial planning for their future well-being. Special Needs Trusts, sometimes referred to as Supplemental Needs Trusts,  are powerful tools designed to provide for individuals with special needs while preserving their eligibility for government assistance programs.

What is a Special Needs Trust?

A Special Needs Trust is a legal instrument created to manage and protect assets for the benefit of an individual with a disability. The primary goal of a  Special Needs Trust is to ensure that the person with special needs has access to funds to enhance their quality of life without jeopardizing their eligibility for essential government benefits such as Medicaid and Supplemental Security Income (SSI).

Types of Special Needs Trusts

• First-Party Special Needs Trust (Self-Settled Trust):

This trust is funded with the assets or inheritance of the person with special needs. It is often used when the individual unexpectedly comes into money, like receiving an inheritance or a settlement from a lawsuit, so that they do not lose Medicaid or SSI benefits. 

A first party special needs trust is subject to payback provisions, meaning that any funds remaining in the trust upon the beneficiary’s passing must be used to reimburse the government for Medicaid expenses incurred during their lifetime.

• Third-Party Special Needs Trust:

Family members or loved ones establish this trust for the benefit of the person with special needs. It is commonly used to provide for the individual’s supplementary needs, such as education, transportation, and recreation. Unlike first-party trusts, there are no payback provisions, so any remaining funds can be distributed to other heirs or charities after the beneficiary’s passing.

• Pooled Trusts:

Pooled trusts are managed by nonprofit organizations, where the assets of multiple beneficiaries are combined for investment purposes. Each beneficiary has their own subaccount within the pooled trust. They are an excellent option for individuals with smaller assets, or those who may not have a trusted family member to act as a trustee.

A pooled trust is also the only option for individuals age 65 or older who need to use their own assets to create a SNT to protect benefits.

Special Needs Trusts are invaluable tools for ensuring that individuals with disabilities receive the care and support they deserve while protecting their eligibility for government benefits. Understanding the various types of SNTs and the steps involved in creating them is essential for families navigating the complex world of special needs planning.

Seek professional guidance to make informed decisions and secure a brighter future for your loved ones with special needs. Contact Attorney Jill M. Santiago today by clicking the link below to schedule your appointment to discuss your estate planning needs.