A trust is used as a component of an estate plan to minimize estate taxes. It is a fiduciary arrangement that entrusts a third party, family member or trustee to hold the individual’s assets. A special needs trust operates in the same manner. The difference is that it is designed for an individual who has a disability. Plus, there are a few variations.
A First Party Special Needs Trust is designed to hold government benefits, including Medicaid and Supplemental Security Income. It can be used for an individual who is under the age of 65 years old. The trust can only be funded through the individual’s own assets or benefits. It can also only benefit the individual who is disabled. This trust does not impact Medicaid eligibility. When the individual passes away, the trust is used to pay back the benefits. If there are assets left over, the family gains access to the balance.
A Third Party Special Needs Trust is designed for a person who is disabled but can receive funds from a third party. This trust is common for a child. Thus, it will often be run by the parent of the child. It helps supplement the needs of a beneficiary. The trust does not impact Medicaid eligibility because the beneficiary is not directly funding it, which is a nice advantage.
There are pros and cons to a special needs trust. The best way to gauge if this is a good option to maintain the individual’s assets is to weigh both types against each other. Plus, family members of the disabled person can speak with a legal professional in this field. An estate planning lawyer may be better equipped to evaluate all the circumstances and then offer some guidance. Professionals encourage individuals to explore all options before making a decision.
