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Types of Special Needs Trusts

There are three main types of trusts for special or supplemental needs. Each has their own specific purpose and use, and will apply differently for every party.

 

First Party Special Needs Trusts

The first party special needs trust was developed to be funded with assets owned by the trust beneficiary in order to help them qualify for government benefits. This type of trust is usually established when the intended beneficiary is about to receive either a lawsuit settlement, inheritance from an estate, a large gift, or assets, that would disqualify him from receiving supplemental security income. Supplemental security income has a qualifying threshold that the beneficiary must meet; the individual cannot possess personal assets that equal over $2,000.

 

The beneficiary must meet certain provisions in order to qualify for this type of trust, including: under the age of 65 years old and disabled under the definitions set forth in the Social Security Act. The trust must be set up by either the beneficiary’s parent, grandparent or legal guardian, or the court and must be irrevocable, meaning once the trust is established, it cannot be modified or terminated, unless certain circumstances arise. Thus, you should be very sure when making any type of irrevocable trust that the terms are set out as you want them.

 

Third Party Supplemental Needs Trusts

Third party special needs trusts differ from first party special needs trusts due to the funding party for the trust; with this trust, assets owned by the immediate family, relatives or friends of the intended beneficiary, contribute to the trust, the beneficiary does not. Another main difference is that upon the beneficiary’s death, there is no requirement to pay Medicaid back and the maker of the trust has discretion to distribute the remainder of the trust as they see fit. This type of trust is best suited for parents who seek to ensure their disabled child is still taken care of after their death and even throughout their lifetime as the child gets older.

 

Pooled Needs Trusts

This type of trust is less common for those individuals with families caretaking for the individual. Pooled needs trust have nonprofit organizations manage the trust assets, which are pooled together in order to invest. This is the only type of trust that a disabled individual may set up on their own, which may be the best option for an individual who seeks to remain eligible for public benefits and owns too much in assets, however does not have family or a guardian to establish the trust on their behalf.

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