Choosing the Best Special Needs Trust for Your Circumstances

A special needs trust is an excellent way for parents or caregivers to make sure that a loved one with disabilities will be well provided for even after the caregiver’s death. One of the most helpful features of a special needs trust is that it will not jeopardize any government assistance the disabled person may otherwise qualify for.

There are essentially three types of special needs trusts, all of which name the disabled person as the beneficiary:

1. First-party trust: Contains assets that belong to the disabled person, such as an inheritance or accident settlement.
2. Third-party trust: Contains assets belonging to a donor that is setting up the trust for the benefit of the disabled person.
3. Pooled trust: Contains assets belonging to several people that are pooled together and administered by an organization specifically designed to act as a trustee on behalf of the several disabled persons belonging to the pool.

Does a Trust Impact the Beneficiary’s Right to Governmental Aid?

In all three types of trusts, the beneficiary may continue to receive government aid, particularly Supplemental Security Income (SSI), since the trust property is not technically in the beneficiary’s name and thus the beneficiary does not actually “own” the money in the trust. As long as the beneficiary cannot control the trust payments or revoke the trust and use its assets in anyway, the trust property will not affect the beneficiary’s ability to receive SSI.

To qualify for SSI, a person can have only $2,000 in his own name. However, the government allows a disabled person who has more than the cap amount to transfer his assets to a first-party trust and continue to qualify for SSI. While the beneficiary is living, the trust distributions are used for his benefit. Upon the beneficiary’s death, however, any remaining assets must be used to reimburse the government.

Third-party trusts do not require any reimbursement to the government upon the death of the beneficiary. It is a straight-forward trust often used by parents or other relatives of the disabled beneficiary. The most vital aspect of a third-party special needs trust is the appointment of an appropriate trustee and/or successor trustee. This person must be someone who is highly trustworthy, attentive to the beneficiary’s needs, and competent in dealings with financial institutions, medical staff, and administrative agencies.

Often there may not be an appropriate person to name as the trustee, or there may not be enough assets available to make a third-party trust worthwhile. In those cases, it can be beneficial to join a pooled trust. Essentially, these are set up by charities to allow beneficiaries to pool their trust assets for investment purposes (while still maintaining separate accounts for each person). Typically when the beneficiary dies, the funds will be used to reimburse the government and finance the charity’s operations.

Special needs trusts provide great flexibility, but they also require careful drafting by an attorney who specializes in estate planning. You can begin setting yours up today by contacting our firm’s estate planning lawyer in Alameda County!