When you have a child or family member in your life that has special needs, taking care of them now and in the future requires careful planning and consideration. While an estate plan that includes a will or trust can clarify your wishes and designations for assets and other things, it won’t ensure that your loved one’s needs are consistently met after you’re gone. A special needs trust, also known as a supplemental needs trust (SNT) is a trust set up for someone with special needs or disabilities to provide them with financial support without disqualifying them from their public benefits like SSI or Medicaid. This type of trust gives you the ability to ensure that your child or family member will be taken care of while maintaining their eligibility for benefits while you’re alive or in the event that you pass away or become incapacitated and can no longer care for them.
In this blog we’ll dive into the different types of special needs trusts so that you can determine which might best suit your specific needs. The three main types of SNTs include third-party trusts, first-party trusts, and pooled trusts. You’ll find definitions and uses for each trust below:
Third-Party Trust
A third-party trust is usually created and intended for use while the donor, also known as the person who sets up the trust, is still alive, but to also manage their inheritance in the event that the donor passes away or becomes incapacitated. This type of trust allows a loved one with disabilities to be able to receive gifts and other things that can improve their life, without jeopardizing their eligibility for public benefits. The assets and property that are left in this type of trust after the creator of the trust passes away, can be used by a named trustee to support the individual/beneficiary with special needs. This also protects their eligibility for Medicaid – as funds in a trust never actually belong to a beneficiary, therefore the government cannot enforce reimbursement – and SSI as trust funds can’t be used for anything that would otherwise damage their eligibility, like cash gifts.
What Can A Third-Party Trust Be Used For?
A third-party trust can be used to enhance your loved one’s quality of life, so funds can be used for educational or vocational classes, personal services, living expenses, medical and dental assistance not covered by public benefits, and more.
First-Party Trust
A first-party trust is also intended to benefit those with special needs or disabilities who also have their own assets. A first-party trust is a way to keep their assets from harming their eligibility for public benefits as they no longer own their assets once transferred to the trust. Unlike a third-party trust, a first-party must be irrevocable, meaning it cannot be changed, and it has to be funded by the beneficiary’s assets. A first-party trust might be right for your loved one if they have more than $2,000 in resources as this can disqualify them from receiving SSI and Medicaid.
What Can A First-Party Trust Be Used For?
Like a third-party trust, funds can be used for education and vocational classes, personal services, and even vacations and hobbies. However, because SSI covers food and shelter, funds cannot be used for that and the same goes for a third-party trust.
Pooled Trust
A pooled-trust is a special needs trust that is managed by a non-profit organization. It is made up of various individual’s funds in one pooled trust. The benefit of a pooled trust is that they’re managed by professional trustees, who are experienced in managing special needs trusts and are constantly aware of changing rules and benefits. Because pooled trusts from several beneficiaries, they are able to make more stable investments, and provide additional services that a first or third-party trust might not be able to.
What Can A Pooled Trust Be Used For?
A pooled-trust is similar to a first and third-party trust in that the funds can be used to improve the beneficiary’s quality of life, as long as it’s only being spent on things that their public benefits don’t already supply.
How Can An Estate Planning Lawyer Help
If you’re feeling overwhelmed by your options for special needs trusts, that’s completely normal. Navigating the intricacies of creating a trust that accurately reflects your wishes for a loved one with disabilities is a big task. That’s why it’s important to work with a seasoned estate planning lawyer who can help you throughout the process. A lawyer has years of experience helping clients create wills, trusts, and other legal documents to help clarify their wishes during and after their life. They will evaluate your situation to ensure that you’re choosing a trust that will meet your loved one’s needs while maintaining their eligibility for public benefits so that you can have peace of mind. While it may be tempting to explore the convenience of an online “do-it-yourself” trust template, it’s important to seek professional help instead as these documents are often lacking the proper legal language necessary to make a trust valid, which can lead to time-consuming and costly errors.
An estate planning lawyer can advise you on which type of trust to choose, customizing and drafting the trust, preserving benefits of eligibility, regular reviews and updates to the trust, and more.
Call Fouts Law Group
If you have a child or family member with special needs, it’s important to start planning for their future now. If you don’t have a plan in mind, lead attorney Jeff Fouts can help you create one. He’s served clients in all 50 states, but is particularly familiar with the local courts and laws in Georgia. He can offer you the highest quality legal representation possible using his 30 years of experience in estate planning law. Call Fouts Law Group today to schedule a free consultation and learn more about your options and next steps.
