What is a Special Needs Trust?
A special needs trust (“SNT”) is a type of trust used to provide benefits to persons or beneficiaries with special needs. A major purpose of setting up a special needs trust is to provide benefits to an individual with special needs in order to supplement any benefits they may be receiving from MediCal, Supplemental Security Income (“SSI”) or other federal and/or state benefits. SNT’s are a unique legal vehicle that allow an individual who is receiving needs-based benefits to keep those benefits while receiving supplemental benefits from another source, i.e., the special needs trust.
Needs-based government benefits have asset and income limitations that an individual must meet. If that individual receives any other asset or income to their name, that person can lose the government-based benefits. However, often times, the benefits being received from government programs is not sufficient or that individual’s loved one may want to ensure additional benefits such as housing, education, support and comfort. Further, for parents or guardians of special needs individuals, there is the concern over care of their child once they pass away. A properly funded and managed special needs trust can bring peace of mind.
Additionally, a special needs trust can help protect an individual from persons who intend to take advantage of that individual, particularly financially. A third party is managing that Trust in most cases and, therefore, those persons with malintent would not be able to gain access to the Trust assets.
There are three common types of special needs trust: (1) a third party special needs trust; (2) a first party special needs trust; and (3) a pooled trust.
Third Party Special Needs Trust
A third party special needs trust is allowable under 42 USC §1382b(e)(3)(A). These types of SNT’s are set up by a party other than the individual who will be benefitting from the SNT. For example, a parent, grandparent, guardian, or other family member can establish the SNT for an individual who has the special needs.
First Party Special Needs Trust
A first party special needs trust is allowable under 42 USC §1396p(d)(4)(A). These SNT’s are set up by the individual with special needs who can transfer his/her assets to the SNT while maintaining their needs-based government benefits. There are additional constraints for the first party SNT’s that are not present in third party SNT’s. Often times, these SNT’s are set up to receive settlement from litigation wherein the individual was harmed resulting in a disability that was not previously present.
Pooled Trusts are special needs trust where assets of multiple individuals are pooled together and managed, typically by a nonprofit association.
Whether or not a special needs trust makes sense for an individual will be specific to each situation. If you are interested in learning more, please contact our office for a consultation at 424-242-5021.
Nothing in this article should be construed as legal advice. For specific guidance regarding your situation, please contact an attorney.