Planning for the financial security of a loved one with special needs can be overwhelming, but a special needs trust (SNT) can provide relief. An SNT allows individuals with disabilities to receive financial support without jeopardizing their eligibility for needs-based government benefits like Medicaid and Supplemental Security Income (SSI).
There are three types of special needs trusts: First-Party SNTs, Third-Party SNTs, and Pooled SNTs. Each has unique characteristics tailored to different financial and legal circumstances.
1. First-Party Special Needs Trust
A first-party SNT is funded using assets belonging to the individual with special needs. This type of trust is typically established when a person with disabilities acquires a financial windfall—such as a personal injury settlement or an inheritance—and wants to maintain eligibility for public benefits.
Key Features:
- The individual with disabilities, their parent, grandparent, legal guardian, or a court must establish the trust.
- When the trust is established, the beneficiary must be under age 65.
- After the beneficiary's death, any remaining funds must reimburse Medicaid for services received.
2. Third-Party Special Needs Trust
A third-party SNT is a flexible tool that can be funded by assets that belong to someone other than the individual with special needs, typically parents, grandparents, or other family members. This type of trust is commonly used to ensure that an individual with disabilities receives financial support without affecting their needs-based government benefits.
Key Features:
- It can be established during the donor's lifetime (living trust) or upon their death (testamentary trust).
- There is no Medicaid payback requirement after the beneficiary's death.
- The beneficiary can use the funds for supplemental expenses such as education, home accessibility, modifications, and medical care not covered by needs-based benefits.
3. Pooled Special Needs Trust
A non-profit organization manages a pooled SNT and combines the resources of multiple beneficiaries while maintaining separate accounts for each individual. This type of trust is ideal for those who may not have a family member to serve as trustee or for individuals with smaller assets that need professional management.
Key Features:
- Established and administered by a non-profit organization.
- Open to both first-party and third-party funding.
- Any remaining funds in the trust after the beneficiary's death must reimburse Medicaid for services received.
Choosing the Right Special Needs Trust
Choosing an SNT is a significant decision that depends on the individual's financial situation, health status, eligibility for needs-based benefits, and long-term goals. Sage partners closely with estate planning attorneys and trust companies to ensure your client's trust is established correctly and meets all legal requirements. Contact your Sage consultant today for more information about planning for individuals with special needs.