Demystifying Special Needs Trusts

Demystifying Special Needs Trusts

There may come a point in your life where you’ll need to have a special needs trust. Maybe you’ll be designated as a trustee or have a trust for your child. What does all this mean? A trust is a legal arrangement in which a person or a financial institution, the trustee, holds and manages assets for the beneficiary. This article focuses on a special needs trust.

A special needs trust (SNT) is a trust preserving the beneficiary’s eligibility for government benefits including Medicaid and Supplemental Security Income. Since the beneficiary doesn’t own the assets in the trust, they are eligible for benefit assistance programs with an asset limit. The trustee will supplement but not replace the beneficiary’s government benefits. Supplemental Need Trust are  created to help cover costs not covered by Medicare or Medicaid.

A first-party SNT, also called a “self-settled” or “(d)(4)(A) trust,” is funded with assets or income that belong to an individual with a disability. Federal law states the beneficiary must be under the age of 65 when the trust is created and funded. Usually funding comes from a personal injury settlement or inheritance.

A third-party SNT, is funded with assets belonging to a person that is not beneficiary. No funds of the beneficiary are used for the trust. Typically, funding comes from gifts, inheritance from and life insurance. This trust doesn’t have to pay Medicaid back if terminated, the person who created the trust chooses how the trust estate is distributed when the beneficiary dies.

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