By: Jessica Saio

Special Needs Trusts or SNTs are an essential tool to care for children and adults with disabilities while protecting important public benefits such as Social Security and Medicaid. There are several types of SNTs, usually categorized as first party, pooled, and third party SNTs. It is important to determine which type of SNT you need. This is contingent upon whose property is funding the SNT.

First Party

A first party SNT is funded with an individual’s own assets to protect their eligibility for government benefits. First party special needs trusts are irrevocable. The beneficiary of the trust must be under 65 years old when the trust is established, and the beneficiary’s assets are used to fund the trust.

For instance, this type of trust can be useful for an individual with a disability who inherits assets outright or receives a personal injury settlement. It can also be useful for individuals who become disabled later in life and need to qualify for benefits.

During the beneficiary’s lifetime, the trust can be used to pay for the beneficiary’s needs. Upon the beneficiary’s death, the trust terminates, and Medicaid is reimbursed for anything that was paid on their behalf during their lifetime. The remaining funds are then typically distributed to the beneficiary’s estate.

Pooled Trust

A pooled trust, or community trust, is a type of trust that helps individuals with disabilities to spend down excess funds so they can continue maintaining eligibility for government benefits, such as Medicaid or Supplemental Security Income (SSI). When determining an individual’s eligibility for benefits, the excess monthly income and resources that are deposited are not considered.

A pooled trust is administered by a not-for-profit organization. The organization administers the trust during the beneficiary’s life and distributes funds to third parties to pay for expenses for the beneficiary, such as bills and other services not covered by their benefits. Upon the beneficiary’s death, the funds left in the trust may be retained by the organization managing it.

Third Party

A third party SNT is established for the benefit of an individual with a disability but funded with assets from a third party. This type of trust protects the assets from being deemed an available resource, so the beneficiary’s government benefits are not jeopardized.

A third-party trust can be established under a Last Will and Testament or as a standalone trust. It can be funded through a Last Will and Testament, Revocable Trust, lifetime gifts, and beneficiary designations.

During the beneficiary’s life, the trust can pay for all of the needs of the beneficiary. It’s important that the Trustee is prudent in making distributions from the trust to ensure continued eligibility for benefits.

Unlike a first party special needs trust, upon the beneficiary’s death, there will not be a claim against the remaining assets in the trust for reimbursement of Medicaid benefits paid, because the trust is not funded with the beneficiary’s own assets. Instead, the remaining trust funds will be distributed to other beneficiaries named in the trust.

At Littman Krooks, we can assist you with your special needs planning or estate planning and determining an estate plan that is best suited for you and your family. Contact our office today if you are interested in learning more about the estate tax exemption and annual exclusion amounts.