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Understanding the basics of special needs trusts

On Behalf of | Nov 28, 2023 | Special Needs Trusts

A special needs trust is a legal arrangement created to provide for the financial well-being of an individual with disabilities without jeopardizing their eligibility for government assistance programs, such as Supplemental Security Income (SSI) and Medicaid.

In essence, a properly structured trust can be used to hold and disburse assets for the comfort of a beneficiary with special needs, without making them financially ineligible for the government benefits they need due to excess resources.

This not only benefits the person with special needs but can also provide their family members with some peace of mind, knowing that they’ve provided for their loved one’s long-term financial security – even when they’re no longer around.

There are 3 types of special needs trusts to consider

Special needs trusts can be endlessly customized to fit a beneficiary’s unique needs, but they come in three basic forms:

  1. Self-settled or “first-party” special needs trusts: These are typically used when a beneficiary comes into a large amount of money on their own, often through a personal injury settlement. Typically, these trusts must have a “payback” provision where any assets that remain in the trust after the beneficiary’s death must be used to reimburse the government for Medicaid or other benefits that they received during their lifetime.
  2. Third-party special needs trusts: These are established and funded by someone other than the beneficiary with special needs. Typically, these are created by the beneficiary’s parents, grandparents and other family members. Unlike a first-party trust, no payback provision is required, so the funds that remain can then be disbursed to other family members or even charities.
  3. Pooled special needs trusts: In these arrangements, assets from several people with special needs are pooled together for investment purposes, although each beneficiary has a separate account. These are generally managed by nonprofit organizations and can be a huge benefit if the assets available to a beneficiary are fairly limited.

Special needs trusts are powerful tools when it comes to looking after a loved one with disabilities. They can allow them to lead more comfortable, happier lives without putting needed government benefits out of reach. Learning more about this option can help you see if it fits your family’s needs.