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What Is a Special Needs Trust?

If you or your loved one is chronically ill or mentally/physically disabled, you likely have access to government assistance such as Social Security, Supplemental Security Income, Medicare, or Medicaid. But these benefits may be compromised by assets such as an inheritance, substantial income, or settlement from a lawsuit. An individual can only collect Supplemental Security Income benefits, for example, if their assets do not exceed $2,000.

To resolve this conflict, many establish a Special Needs Trust. When properly drafted, this trust protects an individual with special needs from forgoing their right to government assistance when they have additional assets. Essentially, the trust serves to supplement those benefits rather than threaten them.

Like other types of trusts, a Special Needs Trust is an arrangement involving three parties:

  • The donor—the individual supplying the funds
  • The trustee—the individual holding, managing, and/or administering funds according to the donor’s wishes, which are typically spelled out in the trust
  • The beneficiary—the individual receiving the assets

But these parties may not always be three separate individuals. When you establish a Special Needs Trust, you have a few options depending on who owns the assets and how many individuals receive them.

3 Types of Special Needs Trusts

While all Special Needs Trusts have the same general purpose and function like traditional trusts, each type has certain advantages. Understanding the differences can help you select the one that will best protect you or your loved one’s financial security and wellbeing.

The 3 types of Special Needs Trusts are:

  1. The first-party trust: holds assets (inheritance, settlements, etc.) that belong to the individual with special needs. The government allows individuals to collect benefits from Supplementary Security Income if they place assets exceeding $2,000 into a first-party trust. When the beneficiary dies, the remaining assets in this trust go to the government as a reimbursement. Established in 2016, The Special Needs Trust Fairness Act allows the beneficiary to establish this trust themselves if they are mentally and legally competent.
  2. The third-party trust: holds assets belonging to people who are helping or supporting the individual with special needs. Usually, parents or other family members create a third-party trust. The beneficiary is often a senior citizen who needs access to Medicaid. Like a first-party trust, this typically doesn’t compromise access to government benefits. The key difference between the two is that, when the beneficiary dies, assets go to the donors rather than the government.
  3. The pooled trust: holds assets belonging to many different beneficiaries with special needs. Donors are often charities or nonprofit organizations. The pooled trust allows multiple beneficiaries to combine and invest resources while still maintaining separate accounts. When a beneficiary dies, the funds go to both the government and the organization that managed the trust.

All three types of Special Needs Trusts can offer significant benefits to both the beneficiary and the donor. The beneficiary can retain assets in addition to government assistance, and the donor can properly manage those assets in a way that protects the beneficiary’s present and future security.

Further Assistance from an Experienced Professional

Although the purpose of these trusts is to protect the beneficiary’s access to government benefits, the trust must be properly drafted. Attorney Shevonn Willis at The Smith Willis Firm is dedicated to helping Duluth clients protect their futures. She will help you safeguard the assets and benefits your loved one needs to thrive.

If you are considering establishing a Special Needs Trust, call (770) 766-5811 or schedule a free consultation for skilled legal counsel.