Special Needs Trusts
Overview of Special Needs Trusts
A special needs trust is a trust set up for a person with special needs to supplement any assistance the person receives through various government programs. The purpose of a special needs trust is to supplement, but not supplant, any public benefits that the individual with special needs may be receiving. A properly drafted special needs trust will allow the special needs beneficiary to receive trust distributions while continuing to qualify for government assistance.
How Does a Special Needs Trust Work?
A special needs trust is essentially an agreement between three parties: the creator or “settlor” of the trust (usually the person providing the initial funding for the trust); the trustee who manages the funds of the trust; and the beneficiary who receives the benefit of the funds. Thus, a special needs trust allows the settlor to appoint a trusted individual to manage the trust for the benefit of the individual with special needs. The settlor may also act as the trustee of the special needs trust.
Types of Special Needs Trusts
There are three main types of special needs trusts: first-party trusts, the third-party trusts, and the pooled trusts. All three name the person with special needs as the beneficiary. A "first-party" special needs trust holds assets that belong to the person with special needs, such as an inheritance or an accident settlement. A "third-party" special needs trust holds funds belonging to other people who want to help the person with special needs, for example parents or other family members. A pooled trust holds funds from many different beneficiaries with special needs and is run by a non-profit organization.
The reason for the different types of special needs trusts has to do with the various restrictions on eligibility for public benefits that are set by the Social Security Administration and the Department of Healthcare Services. Because these governmental organizations place restrictions on the amount of assets a public benefits recipient may own, the type of trust required depends largely on whether or not the assets being used to fund the trust belong to the special needs beneficiary or to a third-party.