Generally, a Special Needs Trust is a very specific trust that can be beneficial to those receiving government benefits because of special needs. Most commonly in this category is Medicaid and SSI.  To receive government benefits such as Medicaid and SSI, an individual must have limited assets and income.  A Special Needs Trust is used to hold assets and receive income on behalf of the individual and still qualify the individual for benefits.  The Special Needs Trust is used to pay for items that are not covered by the government programs.  There are two common types of
Special Needs Trust ’s, the “First-Party Special Needs Trust ” and the “Third Party Special Needs Trust.”  Each works a little differently but here’s a brief look into the differences:

A Third Party Special Needs Trust is a trust used to benefit a person with special needs who receives government benefits.  A Third Party Special Needs Trust is created and funded by a person other than the beneficiary with special needs.  This is most commonly done when a parent or grandparent wishes to leave assets for a child that receives government assistance due to disability.  Assets in a Third Party Special Needs Trust can originate from any source and be of any nature.  In addition to not affecting benefits, a Third Party Special Needs Trust can never be reached by Medicaid so long as the Trustee correctly administers the assets.

Unlike Third Party Special Needs Trust’s, a First-Party Special Needs Trust is used when the individual receiving government assistance personally has or receives assets. A person with special needs might acquire property through various ways. A few common examples are when it results from a personal injury award or an unplanned inheritance. 

Unfortunately, if a person with special needs owns any significant amount of property outright, it will affect eligibility for government benefits.  So instead of owning the property directly, the person with special needs puts the property into a first-party trust. If the trust is created properly, following the strict state and federal rules, those assets can be protected. The assets can then be used to benefit the person with special needs without jeopardizing eligibility for government benefits.  There are several variations of First-Party Special Needs Trust’s and all are usually subject to paying back Medicaid if there are any remaining assets. Even when payback provisions are in place, this can be a valuable tool to maintain important government assistance and provide additional support.

If you or a loved one is receiving government benefits and are expecting to receive assets now or in the future, you should call us now at 1-800-YOUR-FIRM to schedule a consultation.