Types of Special Needs Trusts

If you or a loved one is living with a disability, the importance of planning for a secure future, both financially and medically, becomes even more critical. A Special Needs Trust (SNT) is a beacon of hope in this regard. By strategically positioning the financial resources of disabled individuals within one of these specialized trusts, beneficiaries gain access to essential resources while preserving their eligibility for government assistance. An SNT is meticulously structured so beneficiaries can use trust funds for additional needs, such as educational pursuits, recreation, or specialized therapy, while still being eligible for public benefits like Social Security Insurance (SSI) or Medicaid. This is achieved by ensuring the assets within the trust are not directly controlled or “owned” by the beneficiary. As such, the funds are exempt from most financial need-based tests that determine eligibility for many state and
federal assistance programs.

Depending on individual circumstances and objectives, there are several types of SNTs available, each tailored to address specific requirements and challenges. This means that while the foundational objective remains the same across different types of trusts, the source of funding, control, and distribution varies. Therefore, it’s not just about having an SNT; it’s about choosing the right SNT for your situation. Distinguishing between the different kinds and discerning which one aligns with your family member’s situation is paramount.

What Is a Special Needs Trust?

A special needs trust (SNT) is a specialized legal tool created to protect and enhance the financial well-being of individuals with disabilities. One of its primary objectives is to ensure these individuals retain their eligibility for crucial government benefits, such as SSI or Medicaid, notwithstanding any assets they might inherit or receive. The unique design of the SNT makes it possible for the beneficiary to access these supplemental funds without them being counted as personal assets, ensuring the disabled person remains eligible for means-tested government benefits. Retaining eligibility is a central concern for many families, as exceeding asset thresholds can disqualify disabled individuals from access to essential support programs. The SNT acts as a protective buffer, ensuring that assets within the trust do not directly contribute to these thresholds.

The beauty of an SNT is in its dual functionality. While it offers a way for the beneficiary to access additional resources, it simultaneously ensures they don’t lose out on essential government aid. This dual advantage ensures families can provide additional financial support without inadvertently disqualifying their loved ones from receiving government assistance.

First-Party Special Needs Trusts

First-party special needs trusts are established using the beneficiary’s assets. These funds often come from inheritances given directly to the beneficiary, legal settlements, insurance payouts, or accrued savings. First-party SNTs protect these assets from being counted as resources when eligibility for government programs is determined. However, this type of trust includes a Medicaid payback provision which requires, upon the beneficiary’s death, any remaining trust assets to reimburse the state for Medicaid benefits received – hence why it is sometimes termed as a “payback” trust.

Third-Party Special Needs Trusts

Third-party SNTs are funded by assets that belong to someone other than the beneficiary. These funds typically come from family members, friends, or life insurance policies. Third-party SNTs are an essential component of an estate plan, ensuring the beneficiary remains eligible for benefits while receiving supplementary funds. A significant advantage to this type of trust is that there’s no Medicaid payback provision; instead, upon the beneficiary’s death, the assets can return to the funder, be distributed to other designated remainder, or secondary beneficiaries, or be distributed to other causes such as a favorite charity.

Self-Settled Special Needs Trusts

A self-settled special needs trust is essentially the same thing as a First-Party SNT, and the terms are often used interchangeably in the context of special needs planning. These are irrevocable trusts in which the beneficiary is also the one to create the trust. A Self-Settled SNT is specifically created with assets belonging to the individual with disabilities, rather than a third party. Their primary function remains the same: preserving eligibility for benefits while providing supplemental support. They too have a Medicaid payback clause, requiring remaining funds to be used to repay the government after the beneficiary’s death.

Pooled Special Needs Trusts

Pooled special needs trusts are a unique type of trust. Managed by non-profit organizations, these trusts pool the resources of numerous beneficiaries and invest them collectively for potential growth. Each beneficiary has a separate account, and while the pooled funds benefit all, distributions are made based on an individual’s account balance. Upon the beneficiary’s death, some of the assets might revert to the non-profit, though each pooled trust operates slightly differently, and specific conditions will vary.

Determining Which SNT Is Right for You

Selecting the appropriate SNT begins with determining the source of the trust’s assets, as this will determine if you require a first-party SNT or a third-party SNT.  It is important to then evaluate the beneficiary’s present circumstances and anticipated future financial and medical needs to ensure all concerns are included in the final trust document. Families often grapple with questions about setting up a special needs trust, such as which type to select or when to terminate an SNT. For clarity and guidance tailored to your family’s unique situation, it is critical that you seek advice from an experienced special needs attorney, like the attorneys at Cona Elder Law.

Do You Have a Trusted New York Special Needs Planning Attorney?

Navigating the nuances of Special Needs Planning can be confusing. Ensuring a loved one’s welfare while safeguarding their access to vital benefits is a task of extreme importance, and requires a balance that only a well-crafted SNT can provide. At Cona Elder Law, our seasoned Long Island Special Needs Planning attorneys have a deep understanding of SNTs. From establishing and funding the trust efficiently and responsibly, to closing an SNT according to legal requirements your family’s peace of mind is paramount.  Contact our adept team today. Your loved one’s secured future awaits.