When it comes to planning for the future of a loved one with special needs, it’s essential to have a thorough understanding of the different types of trusts available. Four common types of trusts are self-settled special needs trusts, third-party special needs trusts, secure supplemental needs trusts, and parental trusts. Each type of trust has unique features and benefits, and understanding these differences is critical to making an informed decision.
Self-Settled Special Needs Trusts
A self-settled special needs trust is a type of trust established with the assets of the individual with special needs. This type of trust is also known as a “first-party” or “payback” trust because it is funded with the individual’s assets, such as an inheritance or a personal injury settlement. Self-settled special needs trusts are typically established to allow the individual with special needs to retain their eligibility for government benefits, such as Medicaid and Supplemental Security Income (SSI).
One critical aspect of a self-settled special needs trust is that it must include a provision to pay back any funds remaining in the trust to the government upon the beneficiary’s death. This provision ensures that the government is repaid for any benefits paid out during the beneficiary’s lifetime. Self-settled special needs trusts are subject to strict rules and regulations, and it’s essential to work with an experienced attorney to ensure compliance.
Third-Party Special Needs Trusts
A third-party special needs trust is a type of trust established with the assets of someone other than the beneficiary. Typically, third-party special needs trusts are established by parents, grandparents, or other family members to provide for the needs of a loved one with special needs after their own death. Unlike a self-settled special needs trust, a third-party trust does not require a payback provision.
Third-party special needs trusts are often used to provide for the beneficiary’s needs while protecting their eligibility for government benefits. Because the trust is funded with assets that do not belong to the beneficiary, it does not impact their eligibility for Medicaid or SSI. Additionally, because the trust is not subject to a payback provision, any remaining funds can be distributed to other beneficiaries upon the beneficiary’s death.
Secure Supplemental Needs Trusts
A secure supplemental needs trust is a type of trust that is established with the assets of someone other than the beneficiary. This type of trust is often used to provide for the needs of a loved one with special needs while protecting their eligibility for government benefits. Unlike a third-party special needs trust, a secure supplemental needs trust is subject to a payback provision.
The key difference between a secure supplemental needs trust and a self-settled special needs trust is that a secure supplemental needs trust does not require the beneficiary to be under the age of 65. Additionally, a secure supplemental needs trust can be established by someone other than the beneficiary, such as a court or a nonprofit organization.
Parental Trusts
A parental trust is a type of trust that is established by parents of a child with special needs. This type of trust is often used to provide for the needs of the child with special needs after the parents’ death. Parental trusts can be either third-party trusts or self-settled trusts, depending on how the trust is funded.
Parental trusts are typically established to provide for the child’s needs while protecting their eligibility for government benefits. Because the trust is funded with assets that do not belong to the child, it does not impact their eligibility for Medicaid or SSI. Additionally, because the trust is not subject to a payback provision, any remaining funds can be distributed to other beneficiaries upon the child’s death.
Each type of special needs trust has unique features and benefits, and choosing the right type of trust depends on the individual circumstances.
