A special needs trust, also known as a supplemental needs trust or an SNT, is an important type of trust designed for individuals with disability. If you have a child, a spouse, or a loved one with chronic or severe disability, setting up this trust is important especially if you want the disabled loved one to receive optimum care when you are not around.

An SNT is a unique type trust. Thus, there is a huge possibility that you may not know what it entails or how it works. In this article, I’ll provide you with clear-cut information regarding what this trust is, who it is for, etc.

Let’s begin with a definition of this trust.

What is a Special Needs Trust?

A special needs trust creates a fund to assist an individual plagued with an acute or chronic disability when the creator of the trust may not be available to see that the funds is used to cater to the intended beneficiary.

The special needs trust pays for the long-term needs of the beneficiary, and is designed to give the disabled individual the best quality of life possible, without offering the individual so much money that he or she becomes ineligible for government aid.

Special needs trusts are always set up within wills to become effective upon the death of the donor .

Types of Special Needs Trusts

There exist two types of special needs trust: the first party and third party. The first party special needs trust is a trust created by a parent, grandparent or legal guardian using the child’s money, either via earnings, an inheritance that was left for them or, maybe , a personal injury compensation.

A first party trust requires a “payback” provision, meaning that after the death of the child beneficiary, the trust must remit the state for any government benefits obtained. Out differently, the state is saying that, we will allow you use this money for your special needs. However, whatever was not required should be used to cater to your basic care. These trust requires yearly reporting and accounting requirements to the state so as to keep up with how the funds are spent.

On the other hand, a third party trust is created by a third party, usually a parent or grandparent using their money. In this trust, there is no “payback” provision ( it is not needed) because it was not the child’s money that funded the trust and the parent or grandchild are not obligated to leave any assets to the child.

Of course, requiring a payback provision would make parents think twice before setting up a special needs trust. Generally, after the death of the child beneficiary, the balance of the trust is paid out to the disabled child’s children first (if he or she has any). If the child has no children, the balance will go to the surviving siblings, then nieces and nephews, in that order.

Who Needs a Special Needs Trust?

Individuals with disability may need several type of lifelong help. Health insurance can be a very crucial issue, because an individual with a severe disability may never have a job that provides health insurance.

That makes it very important to get coverage under Medicaid, a public health insurance program. However, Medicaid doesn’t offer benefits to everyone. This program is strictly for those with very limited income and assets.

 If parents leave assets to a child suffering from a disability, that inheritance may affect the eligibility of the child. That is where a special needs trust enters the equation. By keeping funds in trust for a child, instead of leaving it for them directly, parents can ensure that their child is eligible for Medicaid.

Do you need an Elder law attorney?

If you need an elder law attorney for matters regarding your elderly loved one, don’t hesitate to call our office. Or if you are a senior and you need help with applying for Medicaid, you can also contact us for assistance.

In addition, in the event that your assets and income are above the threshold, signaling your ineligibility for Medicaid, you can contact us if you wish to set up a Medicaid Asset protection Trust. However, you must have the Medicaid look back period in mind. This means that, after placing your assets in this trust, you are to wait for the next 5 years before applying for Medicaid to avoid any form of sanction.