Special Needs Trusts are an integral part of almost every estate plan. I use them in most of my estate planning documents. There are two types of Special Needs Trusts: First Party and Third Party.
A First Party Special Needs Trust is a trust created with the assets of a disabled person who is under 65 years of age. Often, this type of trust is used where a disabled person is already receiving government benefits such as SSI or Medicaid. If this trust is properly utilized, the beneficiary’s government benefits will not be discontinued.
Until recently, only a parent, grandparent or Court could establish this type of trust for the benefit of a disabled beneficiary. Earlier this year, the law was changed to allow a disabled person with capacity to establish the trust.
Upon the death of the supplemental needs beneficiary, a First Party Special Needs Trust must provide that the State will be reimbursed for any benefits paid to the beneficiary during the beneficiary’s lifetime. This is called a “payback provision”.
A Third Party Special Needs Trust is a trust that can be created by a person with assets that are not owned by the disabled person. Most commonly, a parent will create a Third Party Special Needs Trust for the benefit of a child using the parent’s assets.
Unlike a First Party Special Needs Trust, a Third Party Special Needs Trust does not have a “payback provision”, thus, you can name any individual or entity as beneficiary of the trust after the death of the disabled person.
A very important planning technique is to use a Third Party Special Needs Trust in your Will or Revocable Trust. For instance, you might name your children as beneficiaries of your estate who are all healthy at the time of drafting. However, anyone can become disabled at any time. For this reason, we provide that a Special Needs Trust should trigger in the event of disability, thereby preserving the beneficiary’s inheritance.
There are many reasons why you should consider a Special Needs Trust and they are complicated areas of elder law and special needs planning. Please contact us to discuss your options.
Questions may also be submitted to firstname.lastname@example.org for a response.