If you are a parent with a special needs child or have another close family member who is disabled, ensuring that he’s taken care of when you die is a huge concern. Even if you have money set aside for his care, it may not be enough to ensure he’ll have the necessary financial resources. You have to decide how to give your child the money in a way that meets his needs and does not jeopardize government benefits, such as Social Security (SS) disability and Medicaid.
Putting the assets in a special needs trust may be a good option. There are two different type of trusts: first-party and third-party special needs trusts.
Third-Party Special Needs Trusts
A third-party special needs trust is a common type of trust that parents use for their special needs child or family members use for a loved one. It is created by a legal trust document, often through an estate plan, such as a will. It is designed to protect the person’s eligibility for government benefits, while still providing for the person’s needs. Some key aspects of these trusts include:
- The trust is funded through assets of a third-party, such as a parent, and not the assets of the special needs person. This is one requirement for protecting the person’s eligibility for government benefits, which requires that he not own many assets. The funds remain the property of the donor.
- The trust is administered by a trustee who uses the funds in the trust for the benefit of the person. However, the trustee only purchases necessary items such as furniture, personal services, computers, and vacations. No cash payments can be given, as this could risk the person becoming ineligible for government benefits.
- When the special needs person dies, the remaining funds of the donor would be distributed to whoever the donor designated in his will or trust. This ensures that no money will be paid to reimburse Medicaid on behalf of the special needs person.
First-Party Special Needs Trusts
One key difference between a first-party and third-party special needs trust is that a first-party trust is funded with the assets of the special needs person. It can be funded through a variety of sources:
- Personal injury settlement
- Divorce settlement
- Life insurance policy
Because the funds in this type of trust could jeopardize the person’s eligibility for SS disability payments and Medicaid, the funds are placed into a first-party special needs trust. The trust must meet very specific state and federal rules to provide for the special needs person without risking his eligibility for government benefits. Any remaining funds in the trust when the person dies may need to be paid as reimbursement to Medicaid.
Do you need to create a special needs trust for a special needs child or loved one? You need the assistance of an experienced elder law attorney to create the right trust for your family member and to properly fund it. Call our office, or fill out our online form to schedule a free consultation to get your questions answered, and learn about your legal options.