Trusts offer individuals with disabilities a means of preserving settlement funds and maintaining needs-based benefits like Supplemental Security Income (SSI), Medicaid, and SNAP. When settling a physical injury case, two standard trust options are first-party special needs trusts and pooled trusts. Here is a brief comparison of the two.
First-Party Special Needs Trusts
A first-party special needs trust (SNT) is funded using the beneficiary’s assets; in this case, the claimant’s settlement funds. To qualify, your client must meet Social Security disability standards and be under age 65 when establishing the trust.
A first-party SNT is administered by an individual trustee (e.g., a parent/guardian or other trusted loved one) or a professional corporate trustee. The trustee manages the trust assets and distributions, maintains records, and submits tax filings.
When establishing a first-party SNT, the beneficiary should be aware that the trust is irrevocable; in other words, it cannot be modified or dissolved without a court order. Additionally, first-party SNTs have a Medicaid payback provision, meaning that any assets remaining in the trust upon the beneficiary’s death must first be used to pay back Medicaid for any benefits extended during the trust’s duration.
Fees typically include drafting and implementation, administration, and asset management. Using a structured settlement to fund the trust can help temper costs. Rather than funding the trust with a cash lump sum, periodic payments made into the trust limit the assets under management at any given time, lowering asset management fees.
Pooled Trust
A pooled trust can be an option for claimants who do not meet the under-65 age restriction or are looking for a potentially lower-cost solution. The beneficiary’s assets are used to fund a sub-account that is pooled with other trust beneficiaries’ sub-accounts for investment purposes. A non-profit organization owns and manages the pooled trust, including distributions and tax reporting.
Like a first-party SNT, the pooled trust beneficiary must meet Social Security disability standards. There is no age restriction; however, some states may impose a penalty if the beneficiary is older than 65 when the trust is established. A pooled SNT is irrevocable and has a Medicaid payback provision.
Pooled SNT setup fees are generally lower than the fees for first-party SNTs, but the administration fees may be slightly higher. Again, utilizing periodic payments via a structured settlement as the trust funding vehicle can help decrease the overall costs.
Contact Sage for Trust Planning Services
Trust planning for personal injury claimants requires careful preparation. Contact your Sage consultant today to begin the process of ensuring your client with a disability has the tools needed for the highest possible quality of life.