Disabled persons who receive means-tested public benefits like Supplemental Security Income (SSI) and Medicaid must have no more than $2000 in countable assets in order to qualify (among other requirements). A Special Needs Trust is used to prevent disabled persons from being disqualified from receiving means-tested public benefits if they are to receive the benefits of trust assets or a personal injury award.
There are three types of Special Needs Trusts – first-party special needs trust, third-party special needs trust, and pooled trust special needs trust. For this blog, we will only be discussing first-party and third-party special needs trusts. A pooled trust is a group trust that is administered by a nonprofit for many beneficiaries.
The main – and most important difference – between the two types of trusts is that a third-party special needs trust cannot hold funds belonging to the beneficiary (the person with special needs). So, if a person (under 65) with special needs wins a personal injury award, or inherits money directly, and not thru a bequest directly to a third-party special needs trust, they will need to have a first-part special needs trust established. Another key difference between a first-party and third-party special needs trust is that because a third-party special needs trust holds assets that never belonged to the beneficiary, the government is not entitled to reimbursement from trust assets after the beneficiary passes unlike a first-party special needs trust. Thus, a third-party special needs trust can pass assets on to other family members after the beneficiary with special needs passes. Also, a third-party special needs trust can be established for the benefit of a person with special needs by anybody other than the beneficiary. A first-party special needs trust must be established by the person’s parent, grandparent, guardian, or the court – but keep reading below for recent changes to this law.
As it stands this very minute, the law presumes that a person with disabilities lacks the capacity to establish their own first-party special needs trust, and therefore a parent, grandparent, guardian, or the court must establish it for him or her. This is about to change. In December of 2016 the house passed H.R. 34, which includes the Special Needs Trust Fairness Act and makes a simple modification to 42 U.S.C. 1396p(d)(4)(A). The president has promised to sign this into law. The significant change that this law brings about is that it allows a disabled person with mental capacity to establish his or her own first-party special needs trust.
So, to summarize:
If you have any questions, or need to establish a Special Needs Trust, please call me today and let’s start planning.
See lots of estate planning information on my website at: www.myestate-plan.com
William Daniel Powell (Dan)
This document is for informational purposes only. Nothing in this is to be considered legal advice. Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship. If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction. I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.
Also, please remember that I speak in generalities in my blog and on my website. There are so many different factors that can contribute and completely change the outcome that it would be impractical to discuss all of them here.