When debating whether to establish a Special Needs Trust (SNT) for yourself (if you are the one who is disabled) or a loved one, you must consider which type of trust is best for you. Here are three types of Special Needs Trusts and how they help beneficiaries:
First Party Special Needs Trusts
This type of trust is funded by assets owned by the beneficiary. The trust is established to protect current or future benefits if the beneficiary is about to receive a settlement, inheritance, or other monies that would put them over the benefit limit of countable assets. These trusts are for people under the age of 65.
First Party trusts are most common when the beneficiary's disability is due to an accident, injury, or another person from which the beneficiary will receive a settlement. Also, this trust can be used to protect the benefits from any inheritances or well-meaning gifts from others.
This type of SNT is called First Party because the money is treated as belonging to the person who will benefit from the SNT. The money or property legally belongs to the beneficiary of the SNT. In the case of an inheritance, a First Party SNT will be used when the parents did not create a SNT in their estate plan, and the inheritance will disqualify the child from their benefits. The right of the child to create a SNT in this scenario was created by federal law in 1993. In the case of a personal injury settlement, the settlement proceeds also belong to the person benefiting from the trust. After the beneficiary dies, federal law requires that the government be paid back for certain benefits paid to the beneficiary.
Third Party Special Needs Trusts
Unlike the First Party trust, the Third Party Special Needs Trust is funded by assets from parents, relatives, and friends—not from assets owned by the beneficiary. Third Party trusts are ideal for parents, grandparents, and family members who wish to leave monies or an inheritance to persons with disabilities. This is the most common type of SNT we deal with.
Also of note is that with Third Party trusts, unlike the other two, when the beneficiary dies, Medicaid/Medi-Cal payback is not required. The establisher of the trust has complete control over selection of the trust remainder beneficiaries.
Much thought and consideration should be given to the establishment of Special Needs Trusts, especially if you care for a loved one with disabilities. While beneficial, the trust must be set up in a very specific manner to avoid the loss of public benefits. Special Needs Trusts are a sub-specialty of estate planning, and they are very complex.
This type of SNT is the only option if the money or property belongs to the beneficiary AND the beneficiary is over the age of 65. This trust is also funded by a beneficiary's assets – just like a First Party SNT. If the beneficiary is receiving a small settlement or sum, the First Party Special Needs Trust would may be the best option due to the cost of maintaining the First Party SNT. Also, if the beneficiary has no immediate family members to act as trustee, a pooled trust would be preferred.
Pooled trusts are established and managed by nonprofit organizations. The assets are held by the organization and pooled for use in investment opportunities, but the assets are also managed in a sub account for the beneficiary.
If you would like more information concerning Special Needs Trusts, contact Antelope Valley estate planning law firm Thompson | Von Tungeln (TVT) at (661) 426-2499 or visit their website at www.EstatePlanningSpecialists.com.EstatePlanningSpecialists.com is a comprehensive online resource for personal wealth management solutions through wills and revocable trusts. As Board Certified Specialists in Estate Planning, Trusts and Probate as certified by the State Bar of California Board of Legal Specialization, partners Mark E. Thompson and Kevin L. Von Tungeln are expertly equipped to serve clients with the creative, effective and custom solutions they demand.