Special Needs Trusts

There are two different types of Special Needs Trusts (SNT). The type of SNT that is right for a particular situation depends upon whose property is funding the SNT. If the property funding the SNT originates with the beneficiary, then it is a First-party SNT. However, if the property funding the SNT always belonged to someone other than the beneficiary, then it must be drafted as a Third-party SNT.

 

First-party Special Needs Trusts

First-party SNTs are most often used when the person with a disability inherits money or property outright, or receives a court settlement. These SNTs also are useful when a person without a prior disability who owns assets in his or her name, later becomes disabled, and thereafter needs to qualify for public benefits that have an income or asset limitation.

 

All First-party SNTs must specify that after the beneficiary’s death, all amounts remaining in the SNT, up to an amount equal to the total lifetime medical assistance benefits paid on behalf of the beneficiary by the Medicaid program(s) of any state(s), are first repaid to those state Medicaid program(s), even to the extent of fully exhausting the remaining SNT assets. Only after this Medicaid payback may any balance be distributed to other remaining beneficiaries.

 

Third-Party Special Needs Trusts

Third-party SNTs are commonly used by persons planning in advance to provide for a loved one with special needs when they will no longer be able to do so directly. Typically, Third-party SNTs are established by the parents of an individual with disabilities or special needs, although a grandparent, a sibling or any other person (other than the beneficiary) may establish the SNT. Third-party SNTs can be included in a Last Will and Testament, established within a Living Trust that is designed to avoid probate or drafted as a stand-alone SNT. These SNTs are typically funded upon the death of the individual(s) who established the SNT.

 

When an SNT is created as part of a Will or as a subtrust within a Living Trust, the SNT does not legally exist until after the death of the individual whose Will or Living Trust created the SNT. Thus, in cases where donors may wish to make donations to an SNT prior to the death of the individual who establishes the SNT, a stand-alone SNT would be the better option. This would allow anyone – grandparents, friends, relatives – to donate to the SNT at any time once it is established.

 

The federal laws governing Special Needs Trusts are complex and can be difficult to decipher. Rest assured, the experts at Liebmann Family Law are well versed in all aspects of the relevant statutes and stand ready, willing and able to help you establish the appropriate SNT to best serve your needs and the needs of your loved ones.