People who have a loved one with special needs might want to do something to help that family member out. While it might sound easy to give them money or to name them as a beneficiary in an estate plan, there are times that this isn’t appropriate.
Some individuals who have special needs are dependent upon asset-based programs. Receiving an inheritance or a monetary gift can mean that they don’t qualify for the programs they need. Unfortunately, the inheritance or gift they receive might not be enough to give them the support they need. The answer to this conundrum is to use a special needs trust that will help support them without impacting the assistance they receive.
Third-party special needs trust
A third-party special needs trust sets assets for the benefit of a special needs person into a trust that’s controlled by third party. Typically, the trust is funded when the person who established it passes away. The beneficiary of the trust doesn’t have control of the assets, so they won’t count against the beneficiary for the purpose of retaining means-based assistance.
If you are considering establishing this type of special needs trust, you must look into whether it should be revocable or irrevocable. If it is revocable by the beneficiary him or herself, it may count against them for Medicaid and Supplemental Security Income eligibility.
Another benefit to using a third-party special needs trust is that assets remaining upon the beneficiary’s death can’t be claimed by Medicaid for reimbursement of benefits.
First-party special needs trust
The first-party special needs trust isn’t used as often as the third-party option. This type of trust is usually used by a person who has assets and later becomes disabled. They need to receive needs-based assistance but can’t get rid of the assets without harming their eligibility. It is possible for this type of trust to be established by the court, a legal guardian, a parent or a grandparent of the beneficiary.
There are special considerations that must be factored into the decision to establish a trust, so be sure to discuss your specific circumstances with a skilled estate planning attorney before acting.