Understanding A Special Needs Trust

If you have a loved one with a disability, that person may need government services and assistance for the rest of their life. Unfortunately, they may not qualify for the needed help if they have a certain amount of assets. But there may be a way around this by having your trust attorney set up a special needs trust. What is a special needs trust, and how does a first-party trust vary from a third-party one? Read on for more information. 

What Is A Special Needs Trust?

A special needs trust is a legal arrangement created through the court that allows a person or financial institution to hold and manage assets for a disabled person. The person or financial institution is called a trustee. The trust agreement outlines the terms and conditions of the trust. Some of these terms and conditions include the following:

• Duties and authorities of the Trustee
• Trust objectives
• Trust distributions
• Trust assets

Your trust agreement will also state when and how your special needs trust will terminate. 

You set up a special needs trust for a person with a disability. When set up correctly by your trust lawyer, it allows the person to maintain their eligibility for governmental assets despite having assets that would normally disqualify them. The trust does this by transferring the ownership of the assets from the person into the trust. 

What Is A First Party Special Needs Trust?

The difference between a first-party special needs trust and a third-party special needs trust is where the assets originated. The assets in a first person, special needs trust, are assets the beneficiary legally owns. These assets may be monies from an award, settlement, or savings. 

A first-party trust includes federal and state provisions which require the trustee to notify and pay back monies to the state upon the death of the beneficiary or termination of the trust. The amount of the necessary payback varies by state but is often the number of medical benefits that the state has paid out on behalf of the beneficiary.

What Is A Third-Party Special Needs Trust?

You fund a third-party trust with assets that belong to someone besides the beneficiary. These assets may belong to parents, grandparents, or other family members. A third-party special needs trust does not require the payback of any monies to the government. 

If you think a loved one may benefit from a special needs trust, speak to a trust attorney.