Special Needs Trust

A Special Needs Trust, also known as a Supplemental Needs Trust, is a legal arrangement that allows a person with a disability (the beneficiary) to receive financial resources without risking the loss of eligibility for public benefits such as Medicaid or Supplemental Security Income.

There are different types of Special Needs Trusts, including first-party trusts and third-party trusts, each with its own set of rules and requirements.

First-Party Special Needs Trust

A First-Party Special Needs Trust, also known as a self-settled trust, is funded with assets owned by the person with a disability and is designed to protect their eligibility for means-tested public benefits. A trustee (someone other than the beneficiary) is appointed to manage the trust. Distributions can be made to enhance the beneficiary’s quality of life, but strict rules apply. Any funds remaining in the trust after the beneficiary’s death must be paid first to the State to reimburse for public benefits provided.

Third-Party Special Needs Trust

A Third-Party Special Needs Trust is established and funded by someone other than the person with a disability, often a parent, grandparent, or other family member, and is most commonly funded at the death of the donor. The donor may select a friend or family member to act as trustee to administer the trust or may select a professional fiduciary or trust company to do so. The terms of the trust will provide for how the trust’s assets will be distributed upon the death of the beneficiary.

Legal compliance with federal and state laws governing benefit eligibility is crucial. With careful planning, Special Needs Trusts can hold funds for the benefit of individuals receiving means-tested public benefits and preserve eligibility for those benefits while providing additional financial resources.