Special Needs Trusts

There are a multitude of types of trusts.  Let's take a look at Special Needs Trusts.

Special needs trusts, also called supplemental needs trusts, are a very specific type of trust with a major benefit – these trusts can be used for money and assets to benefit the recipient of means-tested benefit programs (like Medicaid) without making the recipient financially ineligible.  The special needs trust is not a countable asset for financial eligibility.

You can establish a special needs trust at any time.  You could execute one today for your family member, if you wanted to, but you would only need to do that if you have money right now that you want to put into the trust.  Special needs trusts are irrevocable, so any money that goes into it can only come out under the terms of the trust.  For example, if my husband and I set one up for our son today, we could put his part of his future inheritance in it right now.  But if, in the future, it turns out that we need that money to pay for our nursing home care, we are out of luck.  If you only put in what you reasonably expect to spend pretty quickly, it's not a problem, and the trust could be useful. The timing of when to set up a special needs trust and when to put money into it will be specific to the circumstances of the parties involved.

One other point about SNTs: There are two types of special needs trusts, first-party (or self-settled) and third party.  First party SNTs are funded with money that belongs to the beneficiary.  For example, if our son inherits a chunk of money from a family member who didn't know any better, we would have to get a first party trust set up and get the money into it before the 30-day safe harbor period ran out.  

Third party SNTs are funded by money that comes from other people.  This is the type that is typically in a parent’s, grandparent’s, etc., estate plan.  So, the source of the money determines which type is needed.  That's important because of the one difference between 1st party and 3rd party SNTs:  In a 1st party SNT, if there is any money left in the trust at the death of the beneficiary, the state can claim that money up to the amount the state has paid for the beneficiary's care throughout his or her lifetime.  That does not apply in a 3rd party SNT.  The balance, if there is any, would go to whoever the trust says it goes to.

This is the very basic information.  If you think you may need a special needs trust, consult an attorney who is knowledgeable in the area.  Call or email us at the Ward Law Firm to schedule a consultation, and we’ll talk about your specific situation.  There’s never a charge for the consultation.